This post is part of a series on choosing benefits. Today I will look at the ins and outs of our choices for Flexible Spending Accounts. This article is primarily about the Health Care Flexible Spending Account, as we do not participate in the Dependent Care Flexible Spending Account.
The Flexible Spending Account is one of my favorite benefits, and when Large Conglomerate started offering it I was almost as giddy as I am each year when they match Husband’s 401-k contribution. Money in our pocket, baby!
Large Conglomerate offers both a Health Care Flexible Spending Account and a Dependent Care Flexible Spending Account.
Health Care Flexible Spending Accounts allow us to set aside money on a pre-tax basis to pay for eligible health-related expenses.
Examples of eligible Health Care FSA expenses:
- Annual deductibles for medical, dental and vision plans
- Charges not covered by/reimbursed by medical, dental and vision plans
- Copayments and coinsurance for physicians and prescription drugs
- Over-the-counter medications such as cold and allergy medicines, antacids and pain relievers
You would not believe some of the stuff that’s reimbursable under this plan! I never read the entire list until tonight, and you can bet I’m going to increase my contribution this year!
Dependent Care Flexible Spending Accounts would let us set aside money on a pre-tax basis to pay for eligible dependent care expenses that allow us to go to work. The program is designed for anyone with dependent children under age 13 or other qualifying dependents of any age (anyone taking care of elderly parents????) who are not/are no longer capable of taking care of themselves for whom you must pay for the services of a day care provider in order to work. If you are married, your spouse must be unable to care for the dependent(s) because he or she works, is a full-time student or has a physical or mental disability.
This is not something we do, as I am very lucky to be a Stay at Home Mom.
Examples of eligible Dependent Care FSA expenses:
- Expenses paid to a caregiver for dependent service care in your home or other licensed location
- Day Care provided at a licensed day care center, nursery school or summer day camp
Important things to remember about both FSAs, most of which should apply the same way to your situation:
- Did you get the part about paying with pre-tax dollars? That means that the amount we contribute is deducted from our gross income, reducing the amount of income that’s taxed. We’re getting a discount on every dollar we pay towards our medical costs. More info below!
- We do not need to enroll in Large Conglomerate’s health plans to participate in an FSA. We do, but say if the health coverage at your company is better but they don’t offer an FSA, and your spouse’s company DOES offer an FSA, you can still take advantage through his company even if you decline their health coverage.
- Large Conglomerate is going to maintain the account, and we’ll have to provide receipts throughout the year. I just now read this and it is different from the last few years, when Aetna maintained the Health FSA account and used the claim information submitted by the provider to directly credit my checking account (the one I keep just to allow other companies access, like Paypal) for each deductible or copayment. I’m hoping that this doesn’t mean they are changing that. Other companies offer a debit card. If I am going to have to submit receipts this point will have to go under Pitfalls and PITAs below.
- We can contribute between $300 and $5000 on a pre-tax basis per year per FSA, though if we participated in the Dependent Care FSA and I worked for a company that also offered a Dependent Care FSA we could not contribute more than a total of $5000 combined). There are other IRS rules as relates to how some file their taxes and their income that may affect their contribution, but I’m not going to go into those here. Ask your Human Resources Representative and/or your accountant for more information.
- The money doesn’t have to be in your account in order for you to get reimbursed. So, if you select $1200 as your benefit next year they will deduct $100 per month. If you wind up getting a $500 medical bill on January 2nd they are going to reimburse you the money even though they’ve not collected a penny from you yet. And it gets better, because…
- If you leave that job the next day you don’t have to pay them back. So let’s say in the previous example you quit that job on January 5th you owe them nothing other than what they deduct as your contribution from that one paycheck. Now, let’s not all rack up some medical bills in January and quit right afterwards, k?
Pitfalls and PITAs (There is really no bad news in an FSA)
- Claims and contributions are counted separately, so you cannot use Dependent Care FSA money to make up for a shortfall in your Health Care FSA, and vice versa.
- Flexible spending accounts are “use-it-or-lose-it” plans. This means that amounts in the account at the end of the plan year cannot be carried over to the next year. However, the plan can provide for a grace period of up to 2½ months after the end of the plan year. If there is a grace period, any qualified medical expenses incurred in that period can be paid from any amounts left in the account at the end of the previous year. You have to apply for this, so don’t just assume they’ll give it to you! And remember, your employer is not permitted to refund any part of the balance to you.
How much are the tax savings? Your savings will depend on several factors, including your income, tax bracket and yearly health care expenses. For example, assuming an annual income of $40,000, a 15% tax bracket, and estimated health care expenses of $2,000, your tax savings will be approximately $453 annually by using a Health Care FSA.
That’s a big savings!
So, of course you’re going to participate, right? The hardest part is figuring out how much to contribute. When thinking about your health care costs, what are you now paying or plan to pay for next year? Some health care needs you may need to plan for: Pregnancy, Chronic Health Conditions (high blood pressure, diabetes, cancer, asthma, acid reflux, depression, etc.); Elder Health Care (an elderly parent or relative who is your eligible dependent). I can help you there, with a little help from Aetna.
Aetna has a great site that explains the FSA in much more detail, and it has a super terrific calculator so you can estimate for yourself how much you should contribute and what your tax savings would be. These factors aren’t different from company to company, so go ahead and click through…after you’re done reading here!
Before I found out about the super-terrific calculator I asked people about a rule of thumb to use, but everyone had a different one. What we’ve done is look at how much we spent on deductibles, copayments, etc. the prior year and estimate what we think our expenses will be next year. We haven’t added in over-the-counter medications because we’ve just always figured that if we had an overage at the end of the year we could submit them to make up the difference. Or buy some more contact lenses. I’m sure that’s not the best way to do it, but it has worked for us.
Right now we have $175 left in our FSA for this year, but Husband just got his first-ever glasses on Saturday and I’m getting contacts this week, and I still have a few doctor’s appoinments left. Still, I might actually have to submit some over-the-counter medication receipts for the first time.
But I’ll get every penny of that money. Trust me.
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Read the rest of the series!
It’s Benefits Enrollment Time, Series Overview
It’s Benefit Enrollment Time – Medical Insurance Part 1 – Evaluating What You’ve Got
It’s Benefit Enrollment Time – Medical Insurance Part 2 – The Plans and What They Really Cost
It’s Benefit Enrollment Time – Dental Insurance and Why The Math is So Important
It’s Benefit Enrollment Time – Seeing the Vision Plan Clearly. Finally.
It’s Benefit Enrollment Time – Disability and Long Term Care Insurance are Good to Have
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