Many companies offer FSA plans to help with rising medical costs. We discussed the basics of an FSA and the differences between other similar plans in our post: What is an HRA, FSA & HSA? An FSA is an account that you are able to put pre-tax dollars from your paycheck into that can be used (without being taxed) on eligible health and dependent care expenses. But how exactly do you use your FSA?
The first thing you need to know is that there are two types of FSA plans. The first is a Health Care FSA. This type of plan allows you to be reimbursed for qualified health care costs for you and your family. You can use these funds on many things, including copays at the doctor’s office, new glasses, dental copays (including braces), prescription medications, chiropractic copays and more. If you are unsure if your expense would qualify as an FSA expense, The Advantage Group has a great list of eligible expenses on their website.
The second type of FSA is a Dependent Care FSA. This type of account pays for dependent care as long as yourself and your spouse work outside of the home. It pays for things like after school care, nanny services, summer day camp, in-home adult care (for older dependents such as aging parents), and more. However, it does not cover anything if one or more parent works from home, if a dependent child is over the age of 13, or for things like overnight camps. If you aren’t sure you are eligible for this type of plan or are unsure if your expense will be considered a qualified expense, contact your broker.
Step 1: Contribute
An FSA is an account that can only be set up by your employer so you can really only contribute to this account through your company. When you are first hired or during open enrollment, you are able to choose how much you’d like to contribute that year. The amount that you elect will be taken out of your paycheck as the year goes by. For a Health Care FSA, the full amount that you elect will be available as of the first day your plan goes into place so you can start using the money right away. Your company provides the funds and then you basically pay them back for it over the next year. However, a Dependent Care FSA is funded differently. You will only have access to the amount that you’ve had taken out of your paycheck so far. So if you elect $3000 for the year and are only halfway through the year, you should only have $1500 available to use.
Regardless of if you sign up in January or another month in the year, you have to keep in mind that there is a maximum amount that you can contribute for the calendar year and you cannot go over that amount. In 2019, the Health FSA limit is $2,700 and the Dependent Care FSA limit is $5,000 per family. This number is decided by the IRS and it tends to change each year.
Step 2: Use Your Funds
There are 2 main ways to use the money in your FSA.
Option 1 – Debit Cards. Some FSAs provide debit cards that you can use to pay directly from your FSA. If you have one of these, you simply swipe your card when paying for a qualified product or service and it will withdraw the funds from your account. However, make sure that you keep the receipt. If you are ever audited, you will likely need to prove that you were using your funds on qualified expenses. And don’t worry! If you forget your card when you to make a purchase, you can use one of the next option.
Option 2 – Submit for Reimbursement. Many, if not all, FSA providers have a website or mobile application that you can use to be reimbursed for qualified expenses. If you pay for a qualified expense with card, check, cash, or gift card, you just have to make sure that you keep the receipt. From there, you submit a claim through the FSA website. You provide some information about your expense, attach the receipt, and hit submit. From there, your FSA provider will reimburse you in one of two ways: a check in the mail or direct deposit to your bank account. This money is not taxed and you will be reimbursed for all qualified expenses.
FSAs are pretty straightforward and easy to use once you’ve gotten used to it. They work very similarly to a normal bank account with two key differences: 1) the money that goes in and out is tax-free and 2) you can only spend it on qualified expenses. If you have any questions or if your company is interested in adding an FSA plan as an employee benefit, feel free to reach out to our team here at Filice Insurance!
Do you have an HSA? Learn more about how do use your HSA account.