Health & Dependent Care FSAs
What is a Flexible Spending Account (FSA)?
An FSA lets you set aside money from your salary before federal income or Social Security taxes are withheld, which helps lower your taxable income. As you incur health care expenses or dependent care expenses throughout the year, you submit a claim for those expenses, and are reimbursed with tax-free dollars from your account(s).
What is a Health FSA?
The Health FSA reimburses you for out-of-pocket costs for medical, dental, vision or hearing expenses.
What is a Dependent Care FSA?
The Dependent Care FSA reimburses you for dependent care expenses you incur in order to allow you (or you and your spouse) to work.
How do these accounts work?
- You decide during the annual open enrollment period to elect in the Health and/or the Dependent Care FSA.
- You estimate the amount you will spend on out-of-pocket health care expenses and/or dependent care expenses during the year.
- You decide how much you wish to set aside into your Health and/or Dependent Care FSA.
- The amounts you wish to set aside into your account(s) will be deducted from your paycheck in equal amounts each pay period on a “pre-tax” basis.
- As you receive services and incur health care expenses or dependent care expenses throughout the year, you submit a claim for the expenses, and are then reimbursed from your account(s).
- You may file claims as often as you wish — weekly, monthly, etc.
Important notes about FSAs
Keep in mind that any dollars left over in your account at the end of the year are forfeited. It is a “use it or lose it” account. Therefore, you should contribute only what you know you will spend on predictable expenses. There is a run-out period (typically three months) following the end of the plan year for employees to submit expenses incurred in the previous year.
You may want to consult a tax advisor for assistance.