Insurance is supposed to pay for your health care expenses, but what about care needs that fall outside your umbrella of coverage?
Instead of paying cash for your out-of-pocket health care costs—such as eye exams, braces, copays, and deductibles—you can make your money go further with a flex spending account (FSA).
FSAs work like a tax-free health care piggy bank. With each paycheck, a percentage of your money goes into the FSA. But unlike for the rest of your wages, you don’t have to pay state and federal taxes on this piggy bank.
According to the Congressional Research Service, people save about 23 percent in taxes by paying their out-of-pocket health care costs through an FSA. As an extra incentive, some employers may even contribute to your account.
To take advantage of this tax-free portion of your paycheck, you have to keep two things in mind: You can only spend it on health care, and you usually have to spend it by the end of the year.
For most plans, this means that at the end of 2016 any money still sitting in your FSA piggy bank is wiped out, and you’ll start 2017 at zero again. However, some employers may offer a grace period of up to 2 1/2 extra months to spend your money, while others allow up to $500 to be carried over into next year. Your employer may choose one of these options, but not both.
What it Covers
The Internal Revenue Service (IRS) allows you to put up to $2,550 into an FSA with your employer annually. If you’re married, your spouse can put an additional $2,550 in an FSA with their employer too. But keep in mind that you will lose your money if you can’t spend it before the year is over.
Plans vary, but FSAs typically cover the following:
- prescription drugs and lab fees
- eye exams and glasses
- dental cleanings and X-rays, as well as crowns, fillings, and braces,
- massage therapy, chiropractic, and acupuncture
- birth control, fertility treatments, Lamaze classes, maternity care, and midwife fees
- child care costs
- nursing home costs, arch supports, and hearing aids
- substance abuse treatments
- health screenings
- speech therapy
- non-cosmetic surgery
- psychiatric care
- doctor’s fees incurred outside the United States
- legal fees related to medical care
Some plans may also cover over-the-counter drugs, psychotherapy, hypnotherapy, liposuction, health club dues, diabetic supplies, genetic testing, guide dogs, lead-based paint removal, wheelchairs, walkers, and canes, weight-loss programs, and some nutritional supplements, but restrictions apply.
If you need some new eyewear for example, La Bleu Optique offers prescription glasses and sunglasses, regular sunglasses, contact lenses and eye exams. Some of their popular brands include: Mykita, Dita, Thierry Lasry and Carl Zeiss lenses.
It’s important to know the scope of your particular FSA policy because it may cover things you’d never expect. For example, asthma and allergy sufferers may be able to pay for an air purifier or a hypoallergenic mattress through their FSA. Ask to see your company’s policy for more details.
Using your FSA is easy. It works just like a credit card, but one that is restricted only to health care. You may also need to save receipts to justify your FSA purchases.