A Flexible Spending Account (FSA) is a valuable employee benefit offered by many employers. It allows you to set aside pre-tax money from your paycheck to cover eligible healthcare expenses for yourself, your spouse, and your dependents. This can lead to significant savings on income taxes and reduce your overall healthcare costs. However, it’s important to understand the specifics of FSAs, including their types, contribution limits, and eligible expenses.
There are three primary types of FSAs, each catering to different healthcare needs:
This is the most common type of FSA, covering a wide range of eligible medical expenses, such as doctor’s visits, prescription medications, and hospital stays. It also covers expenses like copayments, deductibles, and coinsurance, which are your out-of-pocket costs for healthcare services.
As the name suggests, this FSA focuses specifically on dental and vision expenses. This includes routine checkups, eyeglasses, contact lenses, and dental procedures. It’s important to note that you can have an LEX HCFSA even if you have a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA).
This FSA is designed to assist with the costs of caring for a child under the age of 13 or a dependent of any age who is physically or mentally incapable of self-care. Eligible expenses include daycare, preschool, before-and after-school care, and summer camps.
For 2024, the annual contribution limit for HCFSA and LEX HCFSA is $3,050 per employer. However, the limit for DCFSA is higher, set at $5,000 per household. One crucial aspect of FSAs is the “use-it-or-lose-it” rule. This means that any unused funds in your FSA at the end of the plan year are generally forfeited. However, some employers offer a grace period of 2.5 months to use the remaining funds or allow you to carry over up to $610 to the next plan year. It’s essential to check with your employer about their specific FSA rules.
It’s important to note that you cannot use an FSA with a Marketplace health insurance plan. Marketplace plans offer a similar product called a Health Savings Account (HSA), which serves a similar purpose but has different eligibility requirements and rules.
FSAs can be a valuable tool for managing healthcare costs, but it’s crucial to understand their intricacies. By carefully considering your healthcare needs, contribution limits, and the “use-it-or-lose-it” rule, you can maximize the benefits of an FSA and achieve significant savings on your healthcare expenses.
