Living with chronic health issues like Rheumatoid Arthritis is expensive. My article last month focused on how to save money on your prescriptions. This month, with so many people getting ready to enroll in benefits for the next year, I wanted to talk about a great way to save money on EVERY aspect of your health care. It's called an FSA, which stands for Flexible Spending Account. Many businesses offer this benefit to their employees but as many as 46% of employees pass it up. They may not understand exactly how it works or how it can save them money. Once you understand how much an FSA account can save you, you'll be wondering why you haven't used it all along!
What is a Flexible Spending Account (FSA)?
An FSA is an employer offered opportunity to set aside money from your paycheck into a special savings account to use for medical expenses throughout the year. The money is deducted from your paycheck BEFORE income taxes are calculated on your pay. This can reduce your total income tax per year because you're paying for all your medical related expenses with pre-tax dollars.
How does it work?
An FSA is a special "spending account" that lasts for one calendar year. You must spend what you put into it by the end of the year you enroll in it. During the previous year's open enrollment, you decide how much money you want to put aside for the next full year (the limit will be $2,500 in 2013). Let's use $1,200 as an example for the total amount we want to put into our FSA. With each paycheck during the year you elect to use an FSA, an equal portion of your total amount is deducted from your paycheck before taxes. If we use the $1,200 example and you are paid twice a month, $50 comes out of each paycheck (x24 paychecks = $1,200).
As for spending that money, there are usually two options. First, many companies now offer a debit card for ease of use. Some companies still require you to submit your receipts for reimbursement. Regardless of which option your FSA uses, your TOTAL yearly amount that you decide to put into your FSA is available IMMEDIATELY at the first of the year, even though it will take you all year to pay into it. That's right...every dime of it can be used in the very first month if needed without any penalty. So if you have surgery scheduled in January and know you're going to have a $500 deductible for it plus other costs, your FSA account can pay for it all and you still only see that same deduction from your paycheck all year long!
What can I spend my money on?
You may use your FSA money for any "qualifying expense" that is listed by the IRS. Qualifying expenses include just about everything related to your medical care like insurance premiums, co-pays, co-insurance, doctor visits, prescription drugs, durable medical equipment (i.e., wheelchairs, prosthetics, etc), eyeglasses, dental and more. You may also be able to use your FSA for day care for children or dependent adults. Be sure to check the official guide for using your FSA on the IRS website before you spend to avoid any penalties. And always remember to keep your receipts for everything you spend your FSA money on, even if you use an FSA debit card.