Flexible Spending Account and Eligible Expenses

By Jocelyn Gibbons, on December 22, 2009

The year’s end is quickly approaching, and with it rests the spending deadline of flexible spending accounts (FSAs). What is an FSA? A flexible spending account is an account that employees can use to cover out-of-pocket medical expenses completely tax-free. FSAs are built as employees make equal, recurring contributions from their paychecks to the account.

Why Have an FSA?

The advantage of having an FSA is that it is tax-free, budgeted money for medical expenses — a huge benefit if you anticipate significant medical care such as the birth of a baby, surgery, or any other expected out-of-pocket costs. Even without major expenses, it can still save you a good amount of money.

How does it works? You determine the total amount available in your FSA; this amount is then divided by your number of paychecks for the year. The resulting figure is withheld from each paycheck, pre-taxes.

So How Much Can I Save With FSA? Quite a bit actually. Here is a FSA Saving Calculator to help you figure out exactly how much you’ll be able to save.

How to Get Started with FSA

You can start your FSA by enrolling during your company’s open enrollment period. This almost always corresponds with when you can enroll for other benefits, such as your company’s 401(k) or health insurance plan.

Note: unfortunately, if you’re self-employed, FSA is not available to you.

Using Your FSA

As soon as you have an active FSA account, you can use the entire year’s balance as soon as you would like. If you use your entire FSA and for any reason leave your employment before the end of the year, you are no longer responsible for the remaining FSA paycheck deductions — your former employer will pay the balance.

But, and this is important, if you do not use the full amount of your FSA by the end of the year but you make your full payments, your employer receives the unused balance. In this way, FSAs benefit both the employees — by giving employees tax-free money that can be used immediately; and the employers — by giving employers remaining employee FSA balances at the end of the year.

The deadline for most FSAs — December 31 — is quickly approaching. Use your FSA before then or forfeit your balance to your employer. You could use your FSA to pay for:

1. Birth Control — Includes condoms, birth control pills, and other forms of contraceptives.
2. Contacts or Prescription Eyeglasses
3. Dentistry — Covers dentistry services and supplies with the exception of teeth whitening treatments or products.
4. First Aid Supplies — Includes kits for convenience or supplies purchased separately.
5. Flu Shot — Also covers any other immunizations needed.
6. Hearing Aids and Batteries
7. Orthodontia
8. Over-the-Counter and Prescription Medications — Most, but not all, medication is included. Drugstore.com has a special FSA-approved store where you can see items that are eligible.
9. Planned Procedures — Includes surgeries, routine test, checkups — any medical procedure that requires out-of-pocket expenses.
10. Smoking Aids — Covers over-the-counter or prescription aids, such as nicotine gum and patches.

These are just a few of the treatments and products you can buy with your FSA. The Internal Revenue Service (IRS) establishes FSA guidelines. For the complete IRS list of covered expenses, see IRS Publication 502, Medical and Dental Expenses.

Using your FSA

When using your FSA, be sure to follow your company’s protocols. Some companies issue debit cards for flex accounts, others require you to submit receipts for reimbursement — so make sure to know which your company does. Also, it is always a good idea to keep all of your receipts anyway in order to verify that your expenses were FSA-approved.

You have your FSA — now go to using it! Remember — you can spend your FSA for approved items both in traditional retail stores and online. Often, a little searching around will save you a bundle — stretching your FSA even further.

Reevaluate

Lastly, it is critical to reevaluate your FSA every year to determine your needs. Perhaps you had put too much money in your FSA and were scrambling last minute to use every penny. Or maybe you found yourself without any FSA money left long ago and wish you had deposited more to your FSA.

Either way, assess your needs and determine the FSA figure that is right for you and your family. And if you have never used an FSA before, now may be the time to. If you wear prescription glasses or contact, if you use adhesive bandages or antibacterial ointment, even if you see the doctor — ever — an FSA is a good idea.

How much have you saved using your FSA? Do you have ideas on how to creatively use FSA Funds?

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Jocelyn Gibbons has a background in both creative and technical writing. She is currently the creative marketing director for Just Eyewear, an online eyeglasses retailer.

All posts by Jocelyn Gibbons

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