Teach me about Flexible Spending Accounts

Jimmy King

I've accepted a new job, yay! One of the benefits at the new job is a flexible spending account. I know, very generally, what this is but not any real details. I'm also having trouble actually finding details. Nearly all of the information I find is closer to a vaguely worded sales pitch telling me that the FSA will benefit me, increase my take home pay, lower my expenses, and so on but doesn't actually detail how it does that. The most info I've found is that money is taken out of my income pre-tax in some manner so that I don't pay tax on the money I spent on medical stuff, which at a high level makes sense. I'd really appreciate it if someone with more knowledge can explain this all to me.

Do I have to put money into it first? Do I have to pay money back after it's been spent? Does it limit how much money I can spend?

matt has a problem

FSA basically takes a set amount of your income that you decide on (for my wife it was $400 a year) pre-tax, and puts it into an account you can only spend on (usually) qualified medical expenses. She used hers to pay for her glasses and contacts. The drawback is everything you may think of as "medical" won't qualify (like a humidifier, even though it offers therapeutic benefits), and if you don't spend the full amount in your FSA account by the end of the year, you lose the money. If you know you're going to spend all of it, it's a good deal. Otherwise, you may find yourself stocking up on cough drops come December 30th so as not to lose what's still in your account.

:edit: Also, for hers, the $400 would be in the account January 1st, but it would be deducted as a small amount from each paycheck over the year. So you don't have to build the account up first, you're just paying it off over the course of each year.

Romero Zombie

Ya I use an FSA and my wife also has one for her job - total about $5,000.00 a year. We used it to pay for my daughters braces this year because what is taken out of our check...which I think is about $60 or $70 pre tax is hardly noticeable. As Matt said though, all the money is available up front which is pretty nice.

One thing I would check into with your job is what would happen if you leave your employer prior to the end of the year and used your entire FSA if you would have to pay back the balance or if your employer would eat the difference.

Jimmy King

Yeah, I'll definitely need to look into that. I have some fairly large medical expenses likely coming which are not covered by the insurance but are covered by the FSA. This is also a contract to hire role (FSA is through the recruiter who I am a full time employee of for now) which is highly likely to result in me being hired away in under a year.

EggyToast

FSA is if you have planned or recurring medical expenses. You avoid paying taxes on the money, so you get a 30-40% discount on those medical expenses. That's the basics of how it works.

ArbitraryDescriptor

You need to ask your HR department, because I'm sure this varies from place to place, but here is how ours works:

You pick a number, that number is placed in your account and paid off, pre-tax, evenly over the course of the year. Good.

If you don't spend it all, you lose it. Bad, so don't over commit.

If you are terminated, there are options available to you to continue using your FSA through year's end. Confusing.

Thanatos

You cannot use FSAs on OTC medication anymore, only prescription. They removed most of the "flexible" from it this year.

Gilbert0

ArbitraryDescriptor wrote:

You need to ask your HR department, because I'm sure this varies from place to place, but here is how ours works:

You pick a number, that number is placed in your account and paid off, pre-tax, evenly over the course of the year. Good.

If you don't spend it all, you lose it. Bad.

If you are terminated, there are options available to you to continue using your FSA through year's end. Confusing.

This. It can be confusing. HR / your benefits provider should have a writeup/pdf of it.

For me (with fake #'s), I get $2000. I can take that $2000 and do a couple things.

Apply to my coverage. If I do 80% coverage, that only costs $1500 and I can either take that $500 home OR apply it to a FSA and that extra 20% can be taken out of it. HOWEVER, being a healthy 27 year old, I have no medical costs. So if I don't use that FSA, it's gone. You have to think / budget / plan when you're going to be doing medical things.

ArbitraryDescriptor

Thanatos wrote:

You cannot use FSAs on OTC medication anymore, only prescription. They removed most of the "flexible" from it this year.

Yes and no. Ours still covers most OTC items, but you need a prescription for them. Which is a silly hurdle, but still possible.

No Rx Required: Bandages, splints, joint support, eye patches (:ar!), liquid adhesives, contact solution/cases, eye glasses, thermometers, condoms, breast pumps, preggers tests, polygrip, ovulation testers, bunyon/blister/corn treatments (not warts!), heat/ice packs.

bowen

Ah yes, FSAs, the retarded, inbred cousin of HSAs (the good one).