A flexible spending account (FSA) is an elective benefit that many employers offer. An FSA lets you make pretax contributions to an account designated for qualified medical or dental expenses that health insurance does not cover.
Since FSAs are employer-based, self-employed individuals are not eligible.
Some key considerations about FSAs:
Base your contribution on what your expected out-of-pocket expenses, your employer will deduct an amount from your paycheck each pay period based on your annual election. Funds are set aside in an account; to pay for qualified expenses, you can submit claims or use a debit card, credit card or stored value card provided by the vendor overseeing your FSA.
Although some plans do allow a carryover or a grace period, FSAs are generally use-it-or-lose-it plans. You cannot carry over unused money to the next year. Check with your employer for details about your FSA plan.
You don’t pay federal income taxes or employment taxes on the salary you contribute or on employer contributions. Because you make contributions on a pretax basis, you can lower your taxable income and save on your taxes.
Eligible expenses are qualified medical expenses that your health plan does not cover. See IRS publication 502 at www.irs.gov for a more detailed list of qualifying expenses.
You simply have to submit a claim for reimbursement or use a debit card, credit card or stored value card provided by the vendor overseeing your FSA. Talk with your employee benefits administrator for more information about reimbursement procedures or filing a claim.
This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.