FSA: Maximize Your Pre-Tax Dollars for Everyday Health Needs

A Flexible Spending Account (FSA) is an employer-sponsored benefit that allows you to set aside pre-tax dollars to pay for qualified medical expenses. While it shares some similarities with an HSA, it has unique features and limitations that are important to understand.

🧩 What Is an FSA?

An FSA is a pre-tax savings account offered by employers that can be used for eligible out-of-pocket healthcare costs such as deductibles, co-pays, prescription medications, and even some over-the-counter items.

FSAs are not tied to high-deductible health plans, making them available to a broader group of employees. However, they come with stricter rules on fund usage and rollover than Health Savings Accounts (HSAs).

💡 Key Features of an FSA

• Eligibility:

  • Must be offered by your employer

  • No requirement to have a high-deductible health plan

• Contribution Limits (2024):

  • Up to $3,200 per year per employee

  • Employers may also contribute, but the total contribution cannot exceed the IRS limit

• Tax Advantages:

  • Contributions are made pre-tax, reducing your taxable income

  • Withdrawals are tax-free when used for qualified medical expenses

• Qualified Expenses Include:

  • Doctor visits and copayments

  • Prescription drugs

  • Medical equipment (e.g., crutches, blood pressure monitors)

  • Dental and vision care

  • Menstrual products, OTC meds (as of recent IRS updates)

• Use-It-Or-Lose-It Rule:

  • Unused funds are forfeited at the end of the plan year unless:

    • Your employer offers a grace period of up to 2.5 months, or

    • Allows a carryover of up to $640 (2024 limit) to the next year

• Portability:

  • FSAs are not portable. You lose access to your FSA if you leave your employer (unless you elect COBRA continuation)

🏥 Types of FSAs

1. Healthcare FSA

   • Covers general medical, dental, and vision expenses for you, your spouse, and dependents.

2. Dependent Care FSA

   • Allows up to $5,000 per household to be set aside pre-tax for child care or adult dependent care costs.

3. Limited Purpose FSA

   • Can only be used for dental and vision expenses; typically used alongside an HSA to maximize tax benefits.

📌 Why Choose an FSA?

• Ideal for those with predictable medical expenses

• Can help reduce your taxable income

• Offers flexibility in spending for a wide range of healthcare needs

• Great for families, especially when paired with Dependent Care FSA

❓ FSA vs HSA: What's the Difference?

Certainly! Here's the “FSA vs HSA: What’s the Difference?” section rewritten in easy-to-scan bullet format, ideal for website readers and SEO:

❓ FSA vs HSA: What’s the Difference?

• Ownership

  • FSA: Owned and controlled by the employer

  • HSA: Owned and controlled by the individual

• Eligibility

  • FSA: Offered only through an employer; no specific health plan required

  • HSA: Must be enrolled in a High Deductible Health Plan (HDHP)

• Portability

  • FSA: Not portable — you lose access if you leave your job

  • HSA: Fully portable — stays with you regardless of employment

• Fund Rollover

  • FSA: Use-it-or-lose-it; some plans allow a $640 carryover or a 2.5-month grace period

  • HSA: Unlimited rollover — funds never expire

• Contribution Limits (2024)

  • FSA: Up to $3,200 per year (employee only)

  • HSA: Up to $4,150 for individuals or $8,300 for families (+$1,000 catch-up for 55+)

• Investment Options

  • FSA: Funds cannot be invested

  • HSA: Funds can be invested in stocks, ETFs, mutual funds, etc.

• Tax Benefits

  • FSA: Pre-tax contributions and tax-free withdrawals for qualified expenses

  • HSA: Triple tax advantage — pre-tax contributions, tax-free growth, and tax-free withdrawals

• Usage Flexibility

  • FSA: Limited to specific medical, dental, and vision expenses

  • HSA: Broad use for qualified expenses; after age 65, can also be used for non-medical expenses (taxable)

📘 Frequently Asked Questions (FAQ)

Q: Can I have both an HSA and an FSA?
A: You cannot have both a standard FSA and an HSA. However, you can have a Limited Purpose FSA for dental and vision alongside an HSA.

Q: What happens if I leave my job?
A: FSAs are not portable. You may lose the remaining balance unless you continue coverage through COBRA (usually not cost-effective for FSAs).

Q: Do I need to submit receipts for reimbursement?
A: Yes. Most FSAs require documentation to verify that expenses are qualified under IRS rules.

Q: Can I use my FSA to pay for dependents’ expenses?
A: Yes, as long as they are qualified dependents under IRS guidelines.

🔗 Additional Resources

• IRS Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans

• FSA Store – Eligible Expenses & Tools