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Flexible spending account

Flexible spending account is a money term you need to understand. Here’s what it means.

What is a flexible spending account?

If you have a health plan through your employer, you may be offered a flexible spending account (FSA). You can contribute to an FSA so you can pay for medical and dental costs, including copayments, deductibles and prescription drugs. FSAs are popular because they allow you to put money into your health savings account without paying taxes.

Deeper definition

Some employers will make contributions to your FSA, but none are required to do so. Your total allowable contribution to an FSA in 2017 to $2,600.

Some of the most popular features of FSAs:

  • You can use your FSA to cover certain medical and dental expenses for you, your spouse and your dependents.
  • In addition to prescription medications, you can use your FSA funds to pay for over-the-counter medications with a doctor’s prescription.
  • You may use your FSA to cover the cost of necessary medical equipment, such as blood sugar test kits, crutches, bandages and slings.
  • While you are generally required to use your FSA money during the plan year, your employer may:
  1. Allow you a grace period of up to two and a half months to spend it.
  2. Allow you to carry up to $500 of your FSA funds into the following year.

Flexible spending account example

When you’re making your decision on whether to utilize a flexible spending account, consider the following advantages:

  • Less taxable income — FSA contributions are taken through a pretax payroll deduction, which leaves you less taxable income and a lower tax obligation.
  • Available funds — At the beginning of the year, you pledge to put money away each month for health-related issues, meaning you are more likely to have funds on hand when you actually need them.
  • Simplicity — Many of today’s FSAs are connected to debit cards that you can simply pull out and use when needed.

Even with those advantages, FSAs have the following drawbacks that should also be weighed:

  • Expiration — Although some employers offer a grace period or allow you to roll some of your funds into the next year, others do not.
  • Employment — If you lose or quit your job, you cannot take the FSA funds with you.
  • Tax write-offs — You cannot write off any medical expenses reimbursed by an FSA on your taxes.


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