The cost of health care can be overwhelming. Even with insurance, individuals and families often find themselves spending a significant amount of money on medical costs. Flexible spending accounts (FSAs), also known as flexible spending arrangements, help offset the high price of health care by allowing you to pay for some medical expenses with pretax dollars. That means you're receiving a discount on your allowable health care costs, depending on your tax bracket.

How an FSA Works

澳洲幸运5官方开奖结果体彩网:Flexible spending accounts (FSAs) are offered through your place of work or business. They not only help you reduce the amount you owe for certain medical expenses, but they also help you cut down your tax bill.

Let’s say you earned $1,000 on your last paycheck and your employer deducts $50 for your FSA contribution. This means you effectively made $950 and your employer then calculates and 澳洲幸运5官方开奖结果体彩网:wit♛hholds your taxes based on that amount.

That drop in your 澳洲幸运5官方开奖结果体彩网:take-home pay also means you 澳洲幸运5官方开奖结果体彩网:pay less in taxes on that paycheck. Remember, you can only get this plan through an employer. If you're 澳洲幸运5官方开奖结果体彩网:self-employed, you're out of luck.

You can sign up for an FSA during your company’s open enrollment period. This normally runs in November or December. Signing up is as simple as providing some basic information and deciding how much you want to contribute for the year. Contributions are deducted from each paycheck. Because deductions come from pretax dollars, the money is deducted from your 澳洲幸运5官方开奖结果体彩网:gross income.

There are some conditions, though:

• Since they are offered through your workplace, you can’t get an FSA unless your employer provides one.
• Self-employed people aren’t eligible.
• Once you select a certain contribution amount for the year, you can’t change it.
• The annual contribution limit for an FSA is $3,200 in 2024 ($3,300 in 2025).

You can only use the money on approved items, which are laid out in the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) Publication 502. Generally speaking, if your doctor prescribes a test, medication, or medical equipment, you can probably pay for it from FSA funds. You can also pay for:

• 澳洲幸运5官方开奖结果体彩网:Dental appointments
• Chiropractors
• Eyeglasses
• Contacts
• Hearing aids
• Addiction treatments
• Modifications to your car or home if you or a family member have a disability
• Ambulance services
• Books and magazines printed in braille
• Some transportation costs related to 澳洲幸运5官方开奖结果体彩网:health care treatments
• Training and care of a guide dog

You cannot pay 澳洲幸运5官方开奖结果体彩网:health insurance premiums or be reimbursed for over-the-counter medications, as well as other cost limitations. So, before making a large medical purchase, be sure you are allowed to use FSA funds.

Don’t Underfund Your Account

FSAs are typically a use-it-or-lose-it type of plan. You have roughly one year to use the total sum contributed to the plan, or it becomes your employer's money. But all may not be lost. There are two exceptions. The IRS allows employers to carry over up to $640 for 2024 ($660 in 2025). Another option is that employers can offer employees a 澳洲幸运5官方开奖结果体彩网:grace period of up to 2½ months to use any leftover money.

Bear in mind that a company doesn't have to offer either of these options, and it's not allowed to offer both. So check ahead of time about your employer's particular rules regarding excess funds.

Because of the use-it-or-lose-it rule, you may be tempted to be super-conservative in how much to contribute. But of ASK Benefit Solutions says to꧋ think differently. “A person electing to contribute $1,000 would reduce their tax bill by $376. If this person ꦍleft 20% of their contribution unspent, they still would save $176.”

In other words, you would have to overestimate by a lot to not come out ahead, even if you don’t use the entire amount in your account. And there are always ways to spend the money. For instance, you c🦂an load up on spare pairs of contact lenses or treat꧃ yourself to some quality sunglasses with complete UVA/UVB protection.

How to Use Your FSA as a Loan

Haney also suggests scheduling elective procedures at the beginning of the year if you want to use FSA funds to pay for them. Since you haven’t yet paid the money into the fund, you’re essentially taking a loan from your employer.

“Employers must immediately fund any qualified expense, regardless of when it occurs during the plan year," he explains "Employees can schedule planned medical procedures at the beginning of the plan year (major dental work, braces, infertility treatments, etc.). They then have 52 weeks to repay the loan using pretax dollars.”

He continues, “Employees enjoy a better than 0% interest rate because they repay the loan with pretax, rather than after-tax, money. A person paying 5% state 澳洲幸运5官方开奖结果体彩网:income tax, 7.65% FICA, and 25% federal income tax would need to earn $1,603 in gross income to have $1,000 in after-tax dollars. That equates to a minus 60% 澳洲幸运5官方开奖结果体彩网:interest rate.”

What Happens to Your FSA if You Quit

If you leave your company, try to use your FSA funds before you go because yo🥃u don't have to pay the company back for the difference between what you spent and what you paid in, says , CFP, founder, and president of Chessie Adviso💙rs, LLC.

"If an employee gets reimbursed for their maximum contribution early in the year and then ends up moving and leaving their employer, they essentially get a huge discount on their 澳洲幸运5官方开奖结果体彩网:reimbursed health care services," he says. "If the employee suddenly finds that they will be leaving their employer, they should utilize as much of the FSA account as they can before they l🍷eave."

"When employees forfeit excess money in their accounts at the end of the year, that money stays with the employer," Klumpp adds. "That forfeited money also covers employees who have been reimbursed but leave the employer prior to making the full year's 🎶contribution."

FSA vs. HSA

An FSA is similar to a 澳洲幸运5官方开奖结果体彩网:Health Savings Account (HSA). 澳洲幸运5官方开奖结果体彩网:Both plans allow you to contribute pre-tax dollars, have annual contribution limits, and can only be used for approved health-related expenses.

But there are a few key differences. An HSA doesn't have a use it or lose it rule. The money that you contribute stays in your HSA to use in the future, even if you leave your job, change employers, or retire. You don't have to be employed by somebody to open an HSA, so they are useful if you are self-employed.

HSAs also have higher contribution limits than FSAs. In the 2024 tax year, you can contribute up to $4,150 for an individual ($4,300 in 2025) and $8,300 for a family ($8,550 in 2025).

However, you can only have an HSA combined with a 澳洲幸运5官方开奖结果体彩网:high-deductible health plan, which might or might not be your preferred 澳洲幸运5官方开奖结果体彩网:insurance choice. In 2024, a high-deductible health plan is defined as one with a deductible of $1,600 or higher for self-coverage or $3,200 or higher for family coverage ($1,650 for self-coverage or $3,300 for family coverage in 2025).

The Bottom Line

Because accounts like these are more complicated than basic checking or savings accounts, you may be hesitant to contribute to an FSA. But, by not participating, you're throwing away a roughly 30% discount on health care costs and a reduction in your income tax as well. For many taxpayers, opening a flexible spending account can be ✨a useful way to cover expensive health care costs while also getting tax savings.