Take advantage of your FSA and save money!
Posted by accountingweb on 1331
Last week I learned that only about 15% of the employees of a local business I do some work with use their Flexible Spending Account (FSA) option. Wow! What a mistake. Nearly everyone can benefit from a FSA.
I was really surprised. So I took an unscientific survey. I asked people I saw that I knew trusted me whether they has a FSA and if not, why not. Turns out most didn’t like the “Use it or Lose it” nature of FSAs. That’s a red herring. I’ve been using a FSA for well over 15 years, and I’ve never forfeited a dime. Quite the opposite. I save over $500 annually.
What is so great about a FSA? You can save at least 7%, and as much as 30% of the amounts you set aside on medical care costs not covered by insurance and child care for qualified children. The process is simple and easy because your federal income is reduced on your W-2. You don’t have to meet thresholds as you would to deduct medical expenses on your tax return. And you have immediate access to the money on January 2, so you get care when you need it, not when you have money saved up.
The key to reaping the benefits of an FSA without risking forfeiture is not to put too much aside. So here’s a step-by-step process.
(1) Look at your predictable medical expenses. Set aside 90% to 100% of that amount.
(2) Look at your predictable child care expenses. Set aside that amount, but don’t exceed the limits. Add to the amount in (1)
(3) If you have less predictable expenses, ask your provider to help you estimate the amount and timing of those. For example, today I asked my dentist the approximate out-of-pocket cost of a cap he has suggested, and whether this should be done next year.
(4) If you get healthier, see your Human Resources (HR) department. Some over-the-counter items can be purchased with FSA funds. Note that beginning next January, you will need a prescription to use FSA funds to purchase those items.If your personal situation changes (for example, you have a child or are divorced) talk with your HR department to see whether you qualify to change the amount you have