Flexible Spending Account

If you are looking for a way to lower your out-of-pocket medical expenses, there are some tools on your side that will help you do so. One such tool is the Flexible Spending Account (FSA) program, which most employers offer. Also known as Medical Spending Accounts, the FSA program allows you to use pre-taxed money to pay for various pocketbook expenses that aren’t paid for by your health insurance plan, such as co-payments, deductibles, and various items like eyeglasses that aren’t normally covered. What this means is that, if you are in certain tax brackets, you save extra money in the long term, because you are already saving money on Medicare and Social Security taxes. For most employees, health costs do not normally exceed 7.5 percent of their adjusted income, so they are not able to itemize their health costs on their tax returns, but the FSA program can help to reduce federal tax liability.

Flexible Spending Accounts work by having employers ask you how much of your pre-taxed income you want to put into the account to pay for medical costs, often with a maximum contribution of around $3,000 to $5,000 for the year. Your employer will then deduct the right, proportionate amount from each paycheck and put it into the account. Your maximum amount can be used early in the year if you need to, too, and you will still be re-imbursed, provided you submit the expenses to the administrator of your plan.

The Flexible Spending Account plan has limitations, however. Mainly, along with the employer-set maximum limit, it is also unable to reimburse you on any money that you don’t use over the course of the year, so you will want to make sure that you plan accordingly. Don’t put in too much money, and if you’re able to, set the amount based on expenses that you are certain or reasonably certain you will have; for instance, if someone in the family is getting braces, or if you plan to get a specific surgery or procedure done.