Government, Personal Finance 

How Does A Flexible Spending Account Work?

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Maybe you just started working full-time or your company just offered Flexible Spending Accounts, but the FSA is the key to saving a lot on your medical bills. At the start of your plan year, you decide how much money you intend to contribute to your FSA for the next year. Each month, one-twelve of that amount is deducted from your paycheck pre-tax. When you payout an eligible medical expense, you submit a form and receipt to be reimbursed from your FSA. It’s essentially a discount on the expense equal to your tax bracket since you pay with pre-taxed funds.

Why is this so great? Well for starters, some employers make your life very easy by providing debit cards. You pay with the debit card and the funds are automatically withdrawn from your FSA without the need for paperwork.

Another reason it’s great is that you can use it for dependent care – day care for your children is a legitimate expense for FSAs. Elective medical procedures (lasik) are also covered as well as all your health, dental, and vision plan co-pays. Finally, even over-the-counter drugs like Advil and Claritin are covered too. Sometimes, you can get things that aren’t covered to be reimbursed simply because the plan provider isn’t paying attention. I threw left an ACE bandage on a receipt in my reimbursement documents and was reimbursed.

The only pitfall to the plan is putting in more money than you’re going to spend. At the end of the year, regardless of how much you have left, the balance is reset to whatever you newly elected your FSA contribution to be. As long as you spend before the reset date, you can typically submit receipts for another month or two (check with your provider).

Finally, you can spend the money before you’ve actually contributed it. For example, if you elect to contribute $120 to your FSA, you can spend all $120 of it in the first month despite only contributing $10 that month. If you leave the company at anytime that month, you aren’t required to pay back the amount you’ve already spent and your employer foots the bill. Rest easy though because if you don’t spend it all, your employer reaps the rewards anyway, so it all balances out.

{ 10 comments, please add your thoughts now! }

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10 Responses to “How Does A Flexible Spending Account Work?”

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  2. marlaine gaylor says:

    Our company is working with MBI, a horrible managed company, however, I elected benefits, left the company. Came back as a new hire, and reinstated my flex benefit card, and after using it, they want receipts from January which I don’t have. Used my card at Walgreens, so they temporarily suspended my card, so for the whole year, I could not use my card. Now this is 2008 and they still have my card suspended. this happen to anyone?

  3. Mad in Kansas City says:

    Looking at the flex spending on this site and have a question. I have left my job with a + money on my flex spending at the time I left. Now I did have a lot taken out but I was under the understanding that when I leave the funding would stop at that date. I found this want the case and my employer withdrew ALL the funds for the whole year. I could see if I spent x amount and was in the hole for the money to withhold the money. Have you ever heard of anything like this?

  4. Mercy says:

    There’s nothing technically wrong with this article, but the tone of it is dishonest. The author says that you can sneak non-reimbursable items through if the FSA people are not paying attention. Score! Right? Ugh. Bragging about it reminds me of when I was a cashier at a grocery store decades ago and people on Food Stamps would try to get me to let them buy cigarettes. FSAs are really great tools for tax saving and they sometimes make it possible to pay costs for unexpected expenses ahead of time. I’m sorry that some people are constantly looking for the way to cheat.

  5. Barry says:

    Can I pay for expenses I incurred last year using this year’s Flex Benefits monies? I have some balances left over to pay. I have a Mastercard issued by the Flex Benefits administrator.

    • jim says:

      It depends on when your plan’s year runs and whether you have a grace period. My first employer had a July to June year and had a one month grace period. That meant that you could spend money in July 2008 and still count it against the 2007 – 2008 plan year. Call your HR administrator to find out for sure.

  6. jl says:

    My company does not have the flex card for reimbursement. I have to turn in receipts and then they cut me a check? My question is how fast do they have to repay me, are there rules for this? It usually takes weeks and plenty of asking for it. are there any recourses?

    • kerri says:

      I am a FSA Claims Specialist. Our customers are very happy with our payment turnaround. As long as you have us your request for reimbursement by Tuesday @ 5 pm, you will receive you payment THAT SAME WEEK.

      check out Benefit Solutions, Inc. at

  7. lk says:

    Ace bandages and other first aid supplies are reimburseable with an FSA account.

    But I must say that the attitude of getting something for nothing is certainly prevalent in today’s mentality. I agree that the tone of the articles borders on dishonesty.

    Also when using the debit card for your plan keep every receipt…we have had requests numerous times to document purchases made with the card…even those made at a pharmacy.

  8. Ellis says:

    There is one thing to consider that is rarely mentioned.

    When you have money set aside in a FSA (or other pre-tax account) you are not paying taxes on it, including Social Security (FICA). That means your Social Security earnings will be lower, and any Social Security benefits you earn will also be lower. If you’re earning more than the SS taxable max, then it’s not a consideration.

    But remember this effect on your future benefits, or survivor benefits for your family, should tragedy strike.

    Realize, too, that your employer isn’t paying SS taxes on that amount either, so they’re happy to push FSA or pre-tax accounts.

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