What is a flexible spending account?
A flexible spending account, or FSA, is a special account your employer sets up for qualified out-of-pocket health care costs. The account allows you to contribute part of your earnings to pay for certain medical and dental expenses. Your employer deducts funds before they are subject to payroll taxes, meaning you save an amount equal to the taxes you would have paid on the money you put into the FSA. Employers can choose to contribute to your flexible spending account but are not required to by law. FSA funds must be used by the end of the plan year, but employers can choose to offer a grace period up to March 15 of the following year.
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When do I need to be aware of flexible spending accounts?
If your employer offers a flexible spending account and you want to set aside money for medical expenses, you can consider opening an FSA. You will have immediate access to the full amount, even though you pay into the account over the course of the plan year. If you have dependents, you can use a dependent-care FSA to cover eligible expenses for children, spouses, and elderly parents.
What is important to know about flexible spending accounts?
Flexible spending accounts offer many advantages while helping you set aside money for medical and dental expenses. There are some other important items you should know about flexible spending accounts:
- Your employer contributes to your FSA through payroll deductions, meaning your taxable income is lowered and may reduce the amount of taxes you pay.
- The money in your flexible spending account can help you pay for expenses your health insurance might not cover, such as prescription co-pays, dental procedures, eye exams, and some preventative tests.
- Many FSAs are tied to debit cards that you can use to pay for expenses directly, saving you the time and paperwork involved in filing for reimbursement.
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