If You Shudder at the Thought of getting more of your hard-earned income back from Uncle Sam (IRS) each year, then please disregard this page. If you’d like to pass on a $1,000 raise this year, then you should pass on this article. Or, if you are morally opposed to the idea of a 20% to 40% discount on stuff you already buy, then I’m sorry to have bothered you. In fact, feel free to leave this site as it probably will not be of any use to you.
Still here? Cool. Glad to see that, like me, you’d like a fatter wallet and have plenty of other uses for it than more taxes. This site exists simply to help you and I maximize the “freebie” offered to us by our employers and the government in the form of health Flexible Spending Accounts, or FSAs.
If you are already enrolled in one from your employer, congratulations, you are already on the road to getting back some of your sweet income. Hopefully this site will help you stop leaving money on the table every year (you know who you are), simultaneously heaping self-guilt and bringing you public shame (ok, maybe not that bad). But seriously, to maximize your savings from FSAs is an act of taking what has been offered to you, and it can be a great feeling. It’s just that it can also be hard to understand, annoying to deal with paperwork, and just unsexier than like, oh, making gains in the stock market. I know, I’ve been there and have better things to do than read healthcare documentation. That’s probably why I personally know many colleagues who that aren’t able to maximize their savings during the plan year. Don’t be lazy. Get yours. This site will help.
Why You Should Be Using an FSA
If you aren’t currently enrolled in a health FSA (not to be confused with an HSA, or Health Savings Account. These accounts are a part of certain high-deductible health plans and have nothing to do with FSAs), yet your employer offers you the option of one every year during your open enrollment period for benefits, what’s holding you back? Does it seem to complicated? Do you think it’s not worth the hassle of dealing with paperwork? Do you think you don’t have enough medical expenses to bother with having one? Are you afraid of over-funding your account and losing what you haven’t used up at the end of the benefit year? Let’s break down each of these:
- An FSA seems complicated, and I don’t get it. An FSA is really not that hard to understand. You first decide any amount (up to $2550 for 2015-2016) to contribute to your FSA account based on your estimate as to how much you or any family member might need for medical expenses that coming year. Your employer deducts a pro-rated amount (before taxes) from each of your paychecks and straight into your FSA, until it reaches the total amount you designated. Then starting from the benefit year, whenever you pay for a “qualified” medical expense used by anyone in your family, you’ll pay from your FSA account. (You’ll use a provided account-linked debit card, OR pay out-of-pocket up front and get reimbursed from your FSA later). Notice your FSA was funded by your salary before Uncle Sam takes his portion (taxed), which is the reason all of this is magic and worth your while. Your savings depends on what tax bracket your salary puts you in, but given the typical range of 20% to 40% for federal income tax, it’s sure worth it. There are rules to what qualifies as a medical expense, which makes using an FSA a bit trickier if you’re uninformed. And sometimes it can be a drag to submit reimbursements. But stay tuned, this site will help you navigate the ins and outs of using your FSA so that it’s worth your while.
- It’s not worth the hassle of dealing with the paperwork. Let’s say I give you $2550 to put in either a savings account, the stock market, or an FSA for one year. Depending on your tax bracket, FSAs will guarantee a 20% to 40% return. If you can guarantee that on Wall Street, you’ll probably have a ton of wealthy clients wanting to invest with you. And let’s not even mention how that trounces the pitiful interest rates on savings accounts these days. So suppose your tax bracket is at 30% of your income. If you designate the max $2550 in your FSA and use it all, you’ll have a return of $765 this year. Is that worth learning how to use your FSA and dealing with a little paperwork? It sure is for me. Plus, it’s become easier to deal with reimbursements through FSA debit cards that takes care of a lot of paperwork. More on that later.
- I don’t have enough medical expenses to bother with one. It’s probably like many of us to totally underestimate what we’ll spend on medical, dental and vision stuff. If you think you might see a doctor, dentist, or get an eye exam this year, your co-pay qualifies as an FSA expense. Wear contacts? Your pricey disposable contacts and contact solution (yea even the fancy kind that bubbles/oxidizes) is FSA-worthy. Want that latest pair of Warby Parker eye-glass frames this year? Thanks, FSA man. How about that unplanned (aren’t they all) cavity that needs filling? You might have a pretty high deductible to pay to your dental insurance. Well, your FSA will relieve some of that pain by paying for it with its pre-tax goodness. You get the gist. Think of it as getting a 20% to 40% discount (depending on your tax bracket) on all this FSA-qualified stuff you already purchase on a daily basis. C’mon. Nobody refuses a sale at the store.
- I’ll end up losing what I haven’t used by the usage deadline. The “use it or lose it” rule used to be a legitimate thing that scared folks from using an FSA. Because, funds you didn’t use in time was lost and went to your employer’s pockets. But starting in 2014, the IRS has decided to allow employers to either allow up to $500 unused balance to rollover to the following year or offer a grace period! How cool is that? But even if your employer is mean and doesn’t offer either of these, a little planning should give you confidence that you’ll be able to use every penny of your contribution. This is also where this site comes to play. Hopefully it will help you find ways to fully maximize your FSA.
- Sweeten the deal for me. Allright, a couple more points that might sweeten the deal. You can start using your entire designated amount at the beginning of your benefit year if you wanted to, even though you’re only funding it from your salary (pro-rated) a paycheck at a time. It’s like having a credit card up front for immediate medical use, without the insane interest!
- Ok, now add a cherry on top. You’re a tough one to convince! In the unfortunate case you get laid off by your employer (knocking on wood that it doesn’t happen though), you don’t have to pay/fund the remaining months of your FSA account from your salary. In fact, if you already used up your entire FSA amount before you get laid off, you don’t have to pay any of the difference back! Incredible.
Convinced Yet?
If you are, I’m glad you’re here. Check out the Using Your FSA page for a walk-thru guide. I’ll give you tips that might save you headaches that I experienced the hard way. Then get ideas on how what medical expenses you can use your FSA towards in the FSA-Eligible Items page (you might be surprised!). If you’re the type to appreciate a little real-world example, my wife Rebecca and I will be continuing to blog about our personal usage of our FSA. Lastly, I invite you to ask questions or share your tips in the comments section of any page on this site.
Let’s go!
James
