Do You Know the Rules for Flexible Spending Accounts?
Greg Daugherty | Sept 22, 2017
- 0 Deductibles and copayments
- 0 Dental bills
- 0 Eyeglasses and contact lenses
- 1 All of the above
You are correct! You are incorrect!
A flexible spending account (FSA) lets you set aside money, tax free, from your paycheck to cover medical bills that aren’t covered by health insurance. That includes:
The correct answer is 4. But it’s only available if your employer offers it.
For 2018, how much of your salary can you contribute tax-free to a health FSA?
The correct answer is 3. The 2018 maximum is $2,650, up $50 from 2017.
If you and your spouse both work, you can both have health FSAs.
It’s true. And you can each contribute up to the maximum amount.
Your employer can also contribute to your health FSA account.
It’s true. Your employer can put extra money into your FSA, and you generally won’t have to pay tax on that income, either. However, if your employer makes contributions to pay for long-term care insurance, those are taxable.
You can use your health FSA to pay for qualified expenses for yourself, your spouse, and your children up to what age?
The correct answer is 3. Your children’s expenses are eligible if they are under age 27 at the end of the tax year. You can find a list of many qualified medical expenses on the Internal Revenue Service website.
You can use your FSA to pay your health insurance premiums.
It’s false. You can’t use your health FSA to pay your insurance premiums, but you can use it for any copayments or deductibles. You also can’t use it to pay for long-term care insurance.
You can use your health FSA to pay for over-the-counter drugs, such as cold medicines and pain relievers.
It’s false. Under the current rules you need a prescription if you want to be reimbursed for the cost of over-the-counter medicines. One exception is insulin.
You can’t have a health FSA if you’re self-employed.
It’s true. Sorry, but self-employed people aren’t eligible.
You can have both a regular health FSA and a Health Savings Account (HSA) at work.
The correct answer is 3. Generally, you can’t have an FSA if you also have an HSA (a type of reimbursement account that’s often paired with high-deductible health insurance plans). Exception: If your employer offers a “limited-purpose” FSA for vision and dental care, you may be able to contribute to both it and an HSA.
You have to report your health FSA contributions on your income tax return.
It’s false. Unlike health savings accounts, for example, contributions to health FSAs don’t have to be reported.
You can begin making withdrawals from your FSA at the start of the plan year, even if you don’t have that much money in the account yet.
It’s true. You have access to your entire annual contribution as of the first day of the plan.
What happens if you don’t spend all the money in your account by the end of the year?
The correct answer is 3. In general, health FSAs are use-it-or-lose-it propositions. However, employers have the option of letting you carry over as much as $500 into the following year. They are also allowed to give you a 2 ½ month grace period after the end of your plan year to spend any excess money. They can’t do both of those, though, and they aren’t obligated to do either.