Flexible Spending Account

An FSA provided by your company lets you spend pre-tax dollars for qualified medical expenses.

By reducing your taxes, the FSA saves you up to 40% of the cost, without restricting your providers.

Find out how an FSA works and start saving!

  • FSA banner
  • FSA steps
  • FSA savings

Tax savings

Why you save

FSA lets you save on health care, preserving quality and choice. $6,000 worth of health care costs just about $3,700 or 38% off. How so? Being pre-tax income, you avoid about 25% in federal taxes, 5.3% in state taxes, 7.65% in FICA taxes ... totaling 38%.

Details

How to use

FSA works as follows, if your employer offers it:

  • Declare in January to your employer how much to deduct from each pay check; for example, $500 per month for that $6,000 treatment.
  • Pay out-of-Flexcard (a debit card given to you by your employer), or pay out-of-pocket and seek reimbursement from your employer.

Done! You automatically save about $2,300 at tax time, because your next W-2 will show income $6,000 lower, on which no taxes apply!

Note that the provider does not know or care that an FSA is involved. The savings are from lower taxes, not from lower prices.

Qualified medical expenses

No FSA for tanning

Only Qualified Medical Expenses are FSA-reimbursable. The definition of QMEs is in this IRS form, and the items in this CIGNA list fit the IRS definition.

QMEs include: dental implants, extractions, orthodontic braces, dentures, fillings, cleanings, exams, x-rays, acupuncturist, chiropractor, eye glasses and Lasik.

Restrictions

Timing & limits

Use or lose - FSA is use-it-or-lose-it. The FSA amount declared must be claimed by December 31. Afterward, the unused portion is lost. Accordingly, seek an estimate of the QMEs across all your providers, and then base your FSA declaration on the total.

Caps - FSA caps exist, but you can raise them with some creativity. FSA is capped by the employer ($5,000 typically) and, starting in 2013, by the IRS ($2,500). If the cap is too low for your QMEs, raise it as follows. (a) Try to split the treatment and bills across two calendar years, so as to apply two FSA caps. (b) If your spouse has access to an FSA, apply both FSAs toward you. Next time, you can switch roles and apply both to your spouse. (c) You can combine these strategies to increase the cap fourfold!