Should I participate in my employer's flex spending account for medical expenses?
First, it’s important to know that a Flex Spending Account (FSA) is NOT insurance; it’s a specific account that is used to pay for co-payments, deductibles, prescriptions, medical equipment, and other eligible health care costs (premiums are not eligible).
Those who have a health plan through their work may be eligible to use an FSA in order to effectively pay for medical costs on a pre-tax basis. This is because money originally contributed to the FSA by the employee is not subject to payroll taxes, federal taxes, or state taxes.
The maximum amount you can allot to an FSA is $2,750 per individual (as of 2020) and $5,500 per couple ($2,750 for each worker).
When deciding if you should contribute to an FSA and in what amount, you’ll want to be aware of the “Use It or Lose It” rule, which means you lose any money left unspent in your account at the end of your plan year. However, some employers allow you to carry over up to $500 left in your account from one plan year to the next. You also may have a grace period of up to 2.5 months after your plan year ends in order to spend down the money left in your account.
Another type of tax savings account you may want to consider is a Child Care Reimbursement Account (also a Flex Plan, but for child care). Sometimes taxpayers find this account to be more suitable since child care costs are more predictable than medical expenses.
Feel free to contact us with questions...we’re happy to help!