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Flex Your Finances: How Flexible Spending Accounts Can Save You Money

Introduction to Flexible Spending Accounts

Have you ever wished that you could save money on medical bills or dependent care expenses? Perhaps youve considered opening an HSA, but your employer doesnt offer that option.

Fortunately, you may have the ability to participate in a flexible spending account (FSA), also known as a flexible spending arrangement. This employer-provided benefit can help lower your taxable income while providing financial relief for various expenses.

In this article, well explore how FSAs work, including how to enroll, how to use them, and the different types available.

How Flexible Spending Accounts Work

Opting in and Contribution

During the benefits enrollment period, typically each fall, you can decide if you want to contribute to an FSA for the following year. To enroll, youll indicate the amount of money you want to set aside each paycheck, which lowers your taxable income.

For example, if you contribute $1000 annually and youre paid bi-weekly, youd have $38.46 taken out each paycheck before taxes. Its important to note that the funds do not roll over from year to year, so its essential to calculate what youll need and only contribute accordingly.

However, some employers offer a grace period or a carryover amount to help employees use the funds effectively.

Reimbursement Process

When you have an eligible expense such as a medical bill or child care payment, youll need to submit a claim to the FSA administrator, often via a website or mobile app. Youll also need to submit receipts or documentation to prove the expense was incurred.

Once your claim is approved, the FSA administrator will reimburse the amount of the expense you specified, up to the amount youve contributed. While submitting claims and receipts may seem like an additional step, its essential to ensure that youre using the funds correctly.

Its also important to note that FSAs cannot be used for over-the-counter medication unless its prescribed by a doctor or otherwise meets the IRS criteria.

Types of FSAs

Health FSA

A health FSA is designed to help employees pay for medical expenses that arent covered by insurance. These may include copays, deductibles, and eligible bills such as vision and dental care.

As healthcare costs continue to rise, having an FSA can help reduce the financial burden on employees.

Dependent-Care FSA

If you have children, disabled or elderly family members who rely on you for care, you might be eligible for a dependent-care FSA. This type of FSA is designed to help employees pay for expenses such as day-care, after-school programs, and in-home care.

Its important to note that if youre married, both you and your spouse need to be working, looking for work, enrolled in school, or disabled to use the funds.


In conclusion, flexible spending accounts are a valuable benefit that can help employees save money and ease financial stress. By enrolling during the benefits enrollment period and calculating your contributions wisely, you can use your funds for a wide range of expenses eligible under the IRS guidelines.

Whether you have medical bills, dependent care expenses, or both, FSAs can help reduce your taxable income and provide some financial relief. Talk to your HR representative to find out if your employer offers an FSA and how you can take advantage of this benefit.

FSA-Eligible Expenses

One of the benefits of having a flexible spending account (FSA) is its ability to cover a wide range of healthcare-related expenses. In this section, well delve into the different categories of FSA-eligible expenses and the types of care covered.

Qualified Medical and Health-Related Expenses

An FSA can be used to cover costs related to medical and dental care that aren’t covered by insurance. Here are some examples:


Physician Fees – Elective cosmetic procedures are not eligible, but general medical consultations and procedures such as x-rays, blood tests, and physical therapy are covered. For example, if you visit a dermatologist for acne treatment, the cost of the visit would be an eligible expense.

2. Prescription Medications – Prescription drugs that require a doctors authorization are eligible.

For instance, if your physician prescribed medication to manage high blood pressure, you can use funds from your FSA to pay for the medication. 3.

Medical Equipment – Some healthcare costs cover expenses related to medical equipment that aren’t covered by insurance, such as wheelchairs, crutches, and blood sugar monitoring devices. 4.

Dental Expenses – Dental expenses such as orthodontia (braces) and retainers are eligible. Other dental-related treatments, such as teeth cleanings and fillings, are also eligible expenses.

Types of care covered

In addition to medical and dental care, certain types of care are covered by your FSA, too. 1.

Long-Term Care – Long-term care refers to medical treatment, personal care, and other services provided over an extended period of time to individuals who are unable to perform certain activities of daily living due to chronic illness, injury, or disability. 2.

Psychiatric Care – FSA funds can also be used for psychiatric care, including counseling, therapy, and medication.

FSA Rules and Limitations

There are several rules and limitations associated with flexible spending accounts. Its important to understand these rules to take full advantage of the benefits of an FSA.

IRS Limits and Contribution Amounts

The IRS determines the maximum amount that can be contributed to an FSA each year, and this amount changes from year to year. As of the year 2021, the maximum contribution amount is $2,750 per year per employee.

Married couples who both have access to an FSA can contribute up to $5,500 per year. While this may seem like a small amount, it can add up to significant savings, as contributions are made with pretax dollars.

“Use it or Lose it” Policy

A common misconception about FSAs is that the available funds expire at the end of the year if they are not used. However, the IRS allows employers to provide a grace period or carryover option to their employees.

Employers can allow employees to use the funds up to 2.5 months after the end of the plan year or let them carry over up to $550 into the next plan year. Its important to check with your employers plan administrator to understand the specific rules regarding your FSA.

Tax Advantage of FSA

Contributions to an FSA are made with pretax dollars, which means that every dollar you contribute is not taxed as income, resulting in significant tax savings. If youre in a 25% tax bracket and contribute $2,000 to your FSA, you could be saving up to $500 in taxes.

Its also important to note that when you submit a claim for reimbursement, the benefit received is also tax-free, which means that you don’t have to pay taxes on the amount you received from the FSA.

Differences Between FSA and HSA

While FSAs and health savings accounts (HSAs) are both tax-advantaged accounts, they have several differences. One key difference is that FSAs are only available to those who have employer-provided benefits, while HSAs are available to people who have a high-deductible health plan.

Additionally, the contribution limits are different, with HSAs allowing higher contributions. Finally, while FSA funds typically must be used within the plan year, HSAs are designed to grow over multiple years, even through retirement.


In conclusion, flexible spending accounts offer a wide range of benefits to employees, including tax savings and eligibility for health-related expenses. Its important to understand the rules and limitations of FSAs, including contribution limits, eligible expenses, and the “use it or lose it” policy.

By taking advantage of this underutilized benefit, employees can better manage healthcare costs, leading to greater financial security. Is an FSA Right for Me?

Flexible spending accounts (FSAs) are a great way to save on healthcare expenses, but are they right for everyone? In this section, well explore the benefits of FSAs and how to determine if theyre a good fit for your personal healthcare needs.

Benefits of FSA

The most significant benefit of having an FSA is the ability to use pre-tax dollars to pay for healthcare expenses that are not covered by insurance. This includes the costs of co-pays, deductibles, and eligible prescription drugs.

Using your FSA funds to pay for these expenses can result in significant savings, depending on your tax bracket and your healthcare needs. By contributing to an FSA, you can reduce your taxable income, which means you pay less income tax.

For example, if you earn $50,000 per year and contribute the maximum allowed $2,750 to your FSA, your taxable income is reduced to $47,250. Depending on your tax bracket, this could save you hundreds of dollars or more.

Consideration of Personal Healthcare Needs

When deciding whether or not to enroll in an FSA, its essential to consider your personal healthcare needs. While FSAs can be an excellent way to save on medical expenses, its crucial to calculate carefully what you will be spending on healthcare throughout the year.

Some things to consider before enrolling in an FSA include:

Anticipated Medical Expenses

If you know you will need a lot of healthcare services throughout the year, an FSA may be a good option for you. For example, if you wear glasses or contacts, you can use your FSA funds to pay for eye exams, frames, and lenses.

If you require regular visits to a chiropractor or acupuncturist, you can use your FSA funds to pay for those services. Its important to estimate how much youll spend on healthcare services before deciding how much to contribute to your FSA.

Consider factors such as the frequency of doctor visits, prescription costs, and the cost of any special equipment or supplies you may need.

Unused Funds

If you dont use all of your FSA funds during the year, you may be at risk of forfeiting them. However, some employers offer a grace period or carryover option to help employees use the funds effectively.

Its important to understand your employers policy for FSA funds.

One thing to bear in mind is that you simply cannot withdraw unused funds from an FSA account.

Therefore, finding out the plan rules and being realistic about your healthcare expenses can help you avoid losing any unused funds.


In conclusion, flexible spending accounts offer a valuable way for employees to save on healthcare expenses. When deciding whether an FSA is right for you, its important to weigh the benefits against the expected healthcare expenses you will have throughout the year.

By taking into consideration the anticipated expenses and carefully calculating the right contribution amount, employees can make the most of their FSA and save valuable tax dollars. In summary, flexible spending accounts (FSAs) are a valuable benefit that can help employees save on healthcare-related expenses, reduce taxable income, and provide much-needed financial relief.

By understanding how FSAs work, including the rules and limitations associated with them, employees can take full advantage of the benefits they offer. It’s important to carefully calculate anticipated expenses before enrollment, to ensure that employees only contribute what they need and avoid forfeiting unused funds.

Ultimately, FSAs can provide a necessary lifeline for those struggling with medical bills, and are well worth considering for employees looking to save money and manage their healthcare costs.

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