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Maximizing Your Healthcare Dollars with a Flexible Spending Account

Healthcare Flexible Spending Accounts (FSA) can provide individuals and families with a critical tool to help manage their healthcare expenses. However, many people who are eligible and enrolled in these accounts can find them confusing.

In this article, we will provide a comprehensive guide to Healthcare Flexible Spending Accounts, including contribution limits, tax benefits, rules for using and losing money, changes to FSA rules to help avoid losing money, and eligible expenses.

FSA Contribution Limits and Tax Benefits

A Healthcare Flexible Spending Account (FSA) allows you to save money on a pre-tax basis to cover out-of-pocket healthcare expenses such as deductibles, copays, and prescriptions. The contribution limit changes every year according to IRS regulations and is an attractive benefit because it allows you to reduce your taxable income.

In 2021, the maximum annual amount you can contribute to your FSA account is $2,750. You can use this pretax money to pay for eligible healthcare expenses for yourself, your spouse, and your dependents.

Use-It-Or-Lose-It Deadline and Grace Period

One common issue with Healthcare FSA is the use-it-or-lose-it rule. This means if you don’t use the money, you forfeit it at the end of the year.

However, if you don’t spend all the money by the deadline, you may have a grace period for two and a half months following the end of the plan year to spend it. Keep in mind that not all employers offer the grace period, so be sure to verify with your HR department.

Year-End Rush to Spend FSA Money

Many employees wait until the end of the year to use their FSA balances which creates a year-end rush. As this approach tends to lead to overspending and waste, it is better to use the funds early in the year on eligible healthcare expenses.

This way, you can avoid the pressure to use them before the end of the year and spend them on items you may not need.

Impact of COVID-19 on FSA Users

The COVID-19 pandemic has challenged Healthcare FSA users as some of them have restricted opportunities to visit the doctor and spend their FSA balances. However, The Internal Revenue Service recently announced in a new revenue ruling that high-deductible health plans can cover COVID-19 testing and treatment before patients meet their deductible, and may also cover Telehealth services.

Therefore, FSA or Health Savings Account (HSA) holders can use their funds for COVID-19 testing and treatment before they meet their deductibles.

Changes to FSA Rules to Help Avoid Losing Money

Mid-Year Changes to FSA Contribution Amount

One of the most significant recent changes in Healthcare FSA rules is the option to change your contribution amount mid-year. Due to the pandemic, the IRS ruled that employees could adjust their FSA contributions at any point, regardless of whether their income or employment situation changed.

New Rules for Over-The-Counter Medicine

Over-the-counter (OTC) medicines often provide relief from ailments like headaches, cold and flu symptoms, and allergies. Previously, Healthcare FSA users could only withdraw tax-free dollars from their accounts for OTC medicines with a doctor’s prescription.

However, under the recent CARES (Coronavirus Aid, Relief, and Economic Security) Act, Medical Flexible Spending Accounts can reimburse the cost of OTC medicine without a prescription. Because of the CARES Act, men and women all over the country can maximize their benefits from FSAs by buying over-the-counter medicines without worrying about getting a prescription first.

New Rules for Menstrual Products

In March 2020, the COVID-19 CARES Act expanded the eligible expenses for Health Flexible Spending Accounts (FSA), including menstrual products and feminine hygiene products. Although it is not a significant cost, these personal health products are essential, as they are a part of everyday care with obvious benefits that have not been overlooked.

Eligible Drugstore Items

Healthcare FSAs can be used for a wide range of medical and drugstore items as long as they are considered eligible. Some of the items are bandages, first-aid kits, blood pressure monitors, and more.

However, the IRS has strict rules about what is considered an eligible expense, so it’s essential to check which expenses you can claim first.

Out-of-Pocket Medical and Drug Expenses

Even with insurance, out-of-pocket medical and prescription drug expenses can be substantial. Eligible medical expenses include copays, deductibles, and out-of-pocket maximums under your healthcare plan.

Prescription drugs, a significant medical cost to many people, are also eligible. Vision, Dental, and Hearing Care

The cost of routine vision and hearing exams, eyeglasses or contact lenses; dental cleanings, x-rays, and fillings can add up.

They are often partially covered by insurance, requiring the patient to pay the balance. However, these expenses are eligible for reimbursement using Healthcare FSAs.

Conclusion

Healthcare Flexible Spending Accounts can be a valuable tool for individuals and families, particularly when used appropriately. This comprehensive guide aims to provide readers with the information they need to understand the benefits and eligibility requirements and help them avoid losing money.

It is important to understand the rules and regulations surrounding your FSA and to plan for how best to utilize the funds to ensure that you maximize your financial benefits. Our guide will help answer questions related to FSA contribution limits, tax benefits, grace periods, eligible expenses, and the recent CARES Act changes to FSA rules.

Start deciding to take advantage of a Healthcare FSA today and make the most of your healthcare dollars!

In conclusion, Healthcare Flexible Spending Accounts (FSA) are a crucial tool for managing medical expenses, allowing users to save on pre-tax dollars while covering out-of-pocket healthcare expenses. Our guide provided a comprehensive overview of Healthcare FSAs, including the contribution limits, tax benefits, grace periods, and eligible expenses.

We highlighted the impact of COVID-19 on FSA users and recent changes to FSA rules that promote over-the-counter medicines, menstrual products, dental, vision, and hearing care. To maximize FSA benefits, our readers must understand the rules and regulations, understand the eligible expenses and plan to utilize the funds effectively.

We encourage readers to start taking advantage of a Healthcare FSA today to make the most of their healthcare dollars and reduce their taxable income.

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