Use It or Lose It - Maximize Your FSA Benefits

Use It or Lose It - Maximize Your FSA Benefits

The “Use It or Lose It” rule for flexible spending health care accounts changed. Do you know how to maximize your FSA benefits? Are you making the most out of your account?

If you have a health care plan through your employer, you may have access to an FSA account. The funds in this account can pay for qualified medical expenses such as prescription expenses, copayments, and more. An FSA account is a great way to meet medical expenses that crop up within the year. Furthermore, these accounts come with some amazing tax benefits.

What Is an FSA Account?

A flexible spending account, or FSA, is a savings account that provides account holders with certain tax benefits. Also called a flexible spending arrangement, this type of account allows employees to contribute a portion of their regular earnings.

Employers can also contribute to their employees’ FSA accounts. The purpose of distributions from the FSA account is to reimburse employees for any qualified medical and dental services.

Dependent-Care FSA

A dependent-care FSA is another type of flexible spending account meant to pay for childcare expenses for kids aged 12 years and under. This account can also pay for the care of qualified adults.

This includes a spouse who cannot care for himself/herself but meets specific IRS guidelines. However, you need to understand that a dependent-care flexible spending arrangement does not have the same maximum spending rules as a medical-related FSA.

How an FSA Works

One of the benefits of an FSA is that the money you contribute towards your account is deductible from your pre-tax earnings. Essentially, it can help reduce your annual tax liability. The IRS placed a limit on how much employees can contribute to an FSA account each year. The annual contribution limit is $2,750.

However, if you have a husband/wife, he/she can also contribute the same amount through his/her employer. Although employers can contribute to their employees’ flexible spending account, they do not have to do so. If your employer chooses to contribute to your FSA, it will not reduce the amount the IRS permits you to contribute.

Purpose of the FSA Rule Change

The main purpose of the “Use It or Lose It” rule change is greater flexibility. The goal is to make flexible spending accounts more employee-friendly. The FSA benefit plans of the employer-sponsored health FSAs allow employees to receive a reimbursement for some medical expenses on a tax-favored basis. This applies to medical expenses not covered by the employer’s medical plan.

How to Maximize Your FSA Benefits

Maximizing your FSA benefits is not as difficult as you might think. A flexible spending account can help you save money by letting you spend pre-tax dollars on certain medical expenses, including eye care expenses. However, you need to decide how much you want to deduct from your paycheck when selecting your insurance plan for the coming year.

Some of the most effective tips for maximizing your FSA benefits include:

• Know your limits. However, you do not need to set aside the maximum amount allowed.
• Budget wisely and consider your past experiences. This will help you determine how much you need to set aside for the next year’s contribution.
• Keep track of how you spend your flexible spending account dollars throughout the year.
• Review your bank records to check for reimbursements you are yet to submit.
• Ensure that you have a good understanding of your insurance plan’s end-of-year grace or roll-over rules.
• If you have unspent money in your FSA, shop around for items you will need in the next calendar year, such as getting a new pair of eyeglasses or a comprehensive eye exam.

To learn more about FSA benefits, visit Justice Vision Clinic at our office in Duluth, Georgia. You can call (770) 626-7883 today to schedule an appointment.