Flexible Spending Accounts
Personal Spending Accounts—A Help for You
Often, your health plan includes a Flexible Spending Account (FSA). An FSA is like a savings account that you can use to pay for qualified health care expenses, such as copayments, co-insurance, and costs that count toward your deductible.
You fund your FSA with contributions that come out of your paycheck. You can choose the amount to contribute, up to a maximum determined by your employer. Your employer can also make contributions to your account.
One great advantage of an FSA is that your contributions are taken out before you pay taxes, so you don't pay taxes on your contributions and your money goes further.
You can use your FSA for qualified health care expenses that include:
- Copayments and co-insurance for health care provider visits and prescriptions
- Medical/prescription costs that count toward the deductible
- Certain over-the-counter medical products
An FSA is not portable, which means you cannot take the funds with you to another employer. Also, an FSA has a use-it-or-lose-it provision; any funds that you do not use by year-end are forfeited. But it is a great way to plan for medical expenses during the year.
Spotlight: Health Care Costs
One of the best things about an FSA is that you can save on your taxes. For example, say you're in the 30 percent federal tax bracket and contribute $100 each month to your FSA. Your taxable income will decrease by $100, saving you $30 in tax.