Flexible Spending Accounts: 4 Fast Facts
If you know you have health costs on the horizon, you can save money by using a flexible spending account (FSA). An FSA allows you to take money out of your paycheck before taxes and spend it specifically on qualified health costs. You can set up an FSA during your employer’s health insurance enrollment period, but you cannot get one through the state or federal marketplace. Here’s what you need to know:
- Your FSA contributions are taken out of your paycheck pretax. You’ll pay into the account each pay period, but you won’t be taxed on your contributions. There are limits as to how much you can contribute; for open enrollment 2019 (and 2020 contributions), the cap is $2,700.
- If you have leftover funds, you can roll over up to $500 from the previous year.
- You can use an FSA on any medical expense, such as co-pays and medications. You can also use FSA funds on diabetes devices or other health needs, such as neuropathy footwear, blood glucose meters, test strips, and over-the-counter medication. Your FSA might require you to have a prescription for these items to qualify.
- If you have a high-deductible health plan, you qualify for a health savings account (HSA). It’s like an FSA, but you can contribute more to it: If you’re enrolling for 2020 coverage, the limit is $3,500 for individuals and $7,000 for families. You can change the amount you contribute at any time, and there are no rollover limits. The cash in your HSA can be deducted on your taxes or taken out of your paycheck pretax—and it can earn interest. Learn more here.