The Flexible Spending Account (FSA) is an account for eligible medical expenses, which has special requirements to both save money and use it for specific expenses
No one has bought life or knows what kind of medical needs they might need in the course of a year. Fortunately, in the United States, there is a flexible spending account (FSA) with which you can cover a good part of your health needs, only that, due to its characteristics and restrictions, it is essential that you open it from the beginning of the year so that you can enjoy of its benefits.
A Flexible Spending Account (FSA), also known as a “flex spending agreement,” is a special account into which you put money that you use to pay for certain out-of-pocket health care costs.
One of the biggest attractions of these accounts is that you do not pay taxes on this money. This means that you will save an amount equal to the taxes you would have paid on the money you set aside.
The FSA account can only be opened by an employer, who becomes the owner of the account. That’s why if you have a job and want to open an FSA, contact your company’s human resources for details about your company’s FSA, including the requirements you must meet to enroll.
In fact, because the owner of the account is your employer, it is possible for your employer to make contributions without your knowledge as well. Likewise, you can also request to make a contribution from your paycheck so that you have more money saved.
Each year, the Internal Revenue Service (IRS) limits the amount of contributions you can make to these accounts. For this 2023, you can only enter $3,050 dollars per year per employer, that means you can only have that amount, even if both you and the company made contributions.
One caveat for using this account is that, just as it has a contribution limit, it also has a set period to use those funds. The money you have, be it $3,050 or less, must be used during the course of the current year, if you don’t, that money is lost, which is why the FSA account is also known as “use it or lose it”.
For this reason, it’s important that you apply for an FSA with your employer early in the year so that you have enough time to both raise as much as possible and use it for eligible medical expenses.
If you have a health plan through your employer, you can use the funds in your FSA to pay for health care costs such as deductibles, copays, coinsurance, and some drugs. It cannot be used to pay health insurance premiums. This money can also be used for the medical and dental expenses of your spouse, if you are married, and your dependents.
When the plan year is about to end and you have not used the total funds in the account, you can look with your employer for two options:
1. It can provide you with a “grace period” of up to 2 and a half additional months from the previous year.
2. It can allow you to carry over up to $610 per year to use in the following year.
The employer can offer you either of these options, but not both.
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