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 You pay with the debit card and the funds are automatically withdrawn from your FSA without the need for paperwork.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.