What is a Flexible Spending
Account (FSA)?
A Flexible Spending Account (FSA), (also called
flex plan, reimbursement account, Flex 125, Tax
Saving Plan, Medical Spending Account, a Section
125, or a Cafeteria Plan), is an employer-sponsored
benefit that allows you to pay for eligible medical
expenses on a pre-tax basis (there are also similar
accounts for dependent and child-care expenses).
If you expect to incur medical expenses that won't
be reimbursed by your regular health insurance
plan, you should be taking advantage of your employer's
FSA, if one is offered.
What is MY benefit?
FSA saves you money by reducing your income taxes.
The contributions you make to a Flexible Spending
Account are deducted from your pay BEFORE your
Federal, State, or Social Security Taxes are calculated
and the contributions are never reported to the
IRS. The end result is that you decrease your
taxable income and increase your spendable income.
You can save hundreds or even thousands of dollars
a year.
| |
Estimated
Income Tax Savings |
Your Annual
Contribution |
15%
Tax Bracket
|
28%
Tax Bracket
|
31%
Tax Bracket |
$100 |
$30 |
$43 |
$46 |
$250 |
$74 |
$107 |
$114 |
$500 |
$148 |
$213 |
$228 |
$1,000 |
$296 |
$426 |
$457 |
$3,000 |
$890 |
$1,280 |
$1,370 |
$5,000 |
$1,483 |
$2,133 |
$2,283 |
Note:
This example takes into account federal
income taxes, FICA (Social Security taxes)
at 7.65%, and state taxes at 7% (state
taxes will vary). |
How does it work?
At the beginning of the plan year (which usually
starts January 1st), your employer asks you how
much money you want to contribute for the year
(there are limits). You have only one opportunity
a year to enroll, unless you have a qualified
"family status change," such as marriage,
birth, divorce, or loss of a spouse's insurance
coverage. The amount you designate for the year
is taken out of your paycheck in equal installments
each pay period and placed in a special account
by your employer. As you incur medical expenses
that are not fully covered by your insurance,
you submit a copy of the Explanation of Benefits
or the provider's invoice and proof of payment
to the plan administrator, who will then issue
you a reimbursement check.
What expenses are eligible?
Any expense that is considered a deductible medical
expense by the IRS and is not reimbursed through
your insurance can be reimbursed through the FSA.
These include most elective surgery, laser vision
correction, deductibles, eyeglasses, and prescription
drug co-payments.
