Healthcare is America’s hot topic. Part of the conversation circles around the use of Flexible Spending Arrangements (FSA’s) when discussing how to budget a family’s healthcare costs.
What is An FSA?
A Flexible Spending Arrangement is an employer established benefit plan that holds pre-tax dollars for reimbursement to the employee for qualified medical expenses up to $2,550 a year. A previously agreed upon amount is withheld from the employee’s usual paycheck and placed into the FSA account. No federal, state or medicare taxes are taken out of money put into the FSA.
How Does an FSA Benefit Me?
Save On Your Taxes
The money deposited into an FSA is intended for covering expected medical costs incurred through the calendar year such as prescriptions, co-pays and other approved out of pocket expenses. Your employer can either provide a pre-loaded debit card to be used to pay for the prescriptions up front or proof of the expense must be submitted to the FSA for reimbursement. In any case, no taxes are collected prior or after the expense is made. You save the amount you would normally be taxed on the money used for the medical cost.
Access the Money Before You Earn It
At the beginning of the year, you agree with your employer that you are putting a certain amount into the FSA over the year. Current regulations allow the employee to withdraw the entire year’s amount at one time for qualifying medical expenses. If you need crutches, new glasses or other unexpected medical costs not covered by your insurance, the FSA can cover the cost before you have actually placed the cash into the FSA account.
Budgeting For Your Health
We often have to make choices on household expenses opting between food, clothing and sometimes replacing a brace for a chronic medical condition. All the cash that is placed into an FSA has to be used within the calendar year. If you put aside $500 for prescriptions, but expect only to use $100 of that budget, you would lose the other $400 at the end of the year. However, if your family deals with a chronic condition that requires multiple prescriptions or other items that are paid for out of pocket throughout the year, when you place a small amount into the FSA every pay day, when that brace needs replacing, the cash is available for use. By using an FSA, you are making a promise to the entire family that their health comes first.
Reduce Your Stress
When you are sick, other worries start piling on besides finding enough tissues to blow your nose. Even the small problem of covering a co-pay out of the household expenses can be overwhelming. With an FSA, the cash is set aside for the unexpected trip to the doctor’s office or the emergency room. You can get the professional diagnoses to reassure you that it is just a cold, not a contagious disease, and get the prescription to shorten the virus’s worst symptoms. You get better, get back to work, and get back your sanity.
When paired with an approved health insurance plan, an FSA can help you budget the real costs of healthcare while saving on taxes and adding a level of flexibility to your expenses.