Getting Started

Are flexible spending accounts worth it?

A flexible spending account (FSA) is a voluntary, employer-sponsored program for employees to save a portion of their income, pre-tax, to be used to pay for qualified medical or dependent care expenses incurred during their benefit plan year. You may also have the option of a limited-purpose FSA, which can be used in conjunction with a health savings account (HSA). A limited-purpose FSA can cover certain dental and vision care expenses, while an HSA can cover broader health care costs.

How it works
FSA plans give employees the opportunity to realize tax savings on eligible expenses through pre-tax accounts. The money employees contribute to their FSA can be used to reimburse themselves for eligible, out-of-pocket health care expenses made for themselves and/or covered dependents. Accounts are funded through payroll deductions. The employer determines the maximum contribution amount an individual may contribute to their health FSA during the plan year.

Value of an FSA
An FSA helps you pay for things you likely already buy but allows you to purchase them tax-free. There are hundreds of eligible expenses for tax-free purchases with your health care FSA funds, including prescriptions, doctor’s office copays, health insurance deductibles, and coinsurance. A full list of eligible expenses can be found here. Keep in mind that the list can change, so be sure to check back to this source as needed.

Many over-the-counter items are also eligible, but keep in mind that many require a prescription, letter of medical necessity, or doctor’s directive. Depending on the extent of your health care or dependent care costs, an FSA can help you save on taxes, particularly since the list of eligible expenses has expanded in recent years.

Is it right for me?
A health care FSA can be useful for people with any level of health costs because it provides access to the entire annual amount elected, beginning on the very first day of the plan year for medical, dental, and vision costs. So, if you have an unexpected large expense, you can access the funds you need.

If you have predictable, ongoing medical expenses during the year, or regular over-the-counter spending, using pretax dollars for those costs lowers your bottom line. But be cautious – if you contribute more than you spend, an FSA can backfire. Any unused funds will be forfeited unless your plan allows for a rollover over or provides a grace period. See your employer for details about your plan.