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As part of our goal to keep baby expenses in check, we're looking at possible ways to save with upcoming bills.
Something that we're examining is the Flexible Spending Account offered at my husband's job. It may help with our taxes and save us some money.
What is a Flexible Spending Account?
According to the IRS, a flexible spending account is defined as:
A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses.
FSAs are usually funded through voluntary salary reduction agreements with your employer.
No employment or federal income taxes are deducted from your contribution. The employer may also contribute
Benefits of a Flexible Spending Account
A big tax benefit with FSAs is that any funds you contribute are pre-tax. That means you can lower your tax obligation while getting your medical expenses paid.
You have the entire calendar year to use your account to cover your medical expenses.
Be Careful with FSAs
FSAs have a downside of expiring at the end of the year, meaning if you don't use it, you'll lose it. As of 2011, there has been a number of changes to what can be covered with your FSA. According to the IRS' announcement:
The Affordable Care Act, enacted in March, established a new uniform standard that, effective Jan. 1, 2011, applies to FSAs and health reimbursement arrangements (HRAs).
Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained.
The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eyeglasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after Jan. 1, 2011…
That means that you should start calculating carefully what you'll most likely need for next year so you won't have some of your money wasted.
How Much to Save in Your Flexible Spending Account
The best way to approach it is by planning ahead, before your open enrollment deadline and estimated what you'll need to save for the next year.
Look at Upcoming Eligible Expenses
Looking over the IRS' list of eligible expenses, I noticed a few that could apply to our family:
- Contact Lens: I have pretty bad vision since I was a kid. I have a heard time seeing the giant “E” on the chart without help. I perfer to use contacts, so I will be purchasing some this upcoming year.
- Eyeglasses: As a back up every few years I get a pair of eyeglasses. It's about time to replace the ones that I got. I'll shop around to get an idea of what to expect. Since my vision is bad, it costs extra to thin the lens down.
- Laboratory Expenses: If your doctor refers you to get lab tests done, you can include that as an eligible medical expense.
- Lactation Expenses: A recent change in law allows you to deduct your breast pump and other location supplies.
- Medicines: If prescribed by your doctor, OTC and pharmacy medicines are included for your FSA.
- Physical Examinations: Your annual physical exam is an eligible medical expense according to the IRS.
For us, we're estimating the biggest expenses health wise will be for the baby's well visits. While lactation expenses would be great to use the flexible spendung account on,we'll be purchasing this year, not next year when we'll try the FSA.
My next step is to look at reasonable prices for the above items and then discuss with each other how to allocate his FSA contributions accordingly.
Thoughts on Flexible Spending Accounts
Do you have a FSA offered at your job? Have you taken advantage of that?