Use it or lose it!
A Flexible Spending Account also known as an FSA is a financial account that can be set up through a cafeteria plan from your employer in the United States. An FSA allows the employee to set aside pre-tax dollars that can be used for medical expenses, dental care, child care and other qualifying expenses. It allows the money to be used without being taxed on it therefore reducing your taxable income as well.
The most common FSA is used to pay for medical expenses such as co-pays and deductibles. It can be used for dental procedures, prescription eyeglasses and contacts as well. New laws have taken the privilege away to use it for over-the-counter medications. An FSA can not be used to pay for your health care premiums and is only meant for medically necessary expenses. Cosmetic procedures would not be a covered benefit under the plan. When using the FSA for child care expenses, it is limited to a maximum of $5000 per year.
Members that participate in the FSA are sometimes given a debit card to make their qualifying purchases. Some employers require that the services or products be purchased first then a claim is submitted to them for reimbursement. Since 2005 reimbursements have been extended to 2.5 months beyond the end of the calendar year the plan was effective in. Check to see if your employer offers this “grace period” because the FSA is “use it or lose it” these extra 2 months allows you more flexibility in spending.
You also need to be aware that in the event you quit your job or are let go from the company; any used dollars that have not yet been paid by you from your paycheck will be owed to your employer.
Your employer will have a maximum allowable amount that can be deducted from your paychecks per year. Any money that has accrued though out the year must be used by December 31st of that year or the money will be lost. An FSA does not give the ability to carry over any un-used dollars to the next year, except for the “grace period” if your employer offers that benefit. It is best to make a budget of what your expected expenses will be and think of things you would like the FSA to pay for to ensure you set aside enough money and not too much as well.