How Does a Healthcare FSA Work?
If you're not fully contributing to your healthcare flexible savings account, you could be paying $1,000 in extra taxes this year.
How Does a healthcare FSA Work?
For 2024, you can contribute up to $3,200 of your salary to an FSA as an individual, or if you're a married couple, and you each have an FSA at work then you can contribute up to $6,400 combined. Your contributions are made by deducting money from your income on your pay stub so you won’t pay federal income or payroll taxes on that amount. You generally get started by contacting your employers’ benefits department or by visiting your employer’s benefits website. Money in the FSA generally has to be used by the end of the year (some FSA/employers will give you an extra month or two) and any remaining balance is generally forfeited (up to $610 may be carried over to 2025).
Eligible Expenses
From your FSA you can reimburse yourself for nearly any type of out-of-pocket healthcare expense (below is just a small sample of eligible expenses)
- Doctor's visits
- Prescription medications
- Dental care
- Vision care
- Over-the-counter medications
- Medical equipment
- Mental health services
Meet Catelyn & Eddard
Meet our clients Catelyn & Eddard. They're married, in their 30s, with stressful careers and busy lives. They previously didn’t think they needed to fund their FSA as they rarely visit the doctors or get sick. To help maintain their sanity and stress levels, they each see a therapist on occasion (frankly more people probably should). So far in 2024 those sessions have cost them a little more than $4,000. So we have Eddard start making contributions to his healthcare FSA through his payroll at work (Catelyn’s employer doesn’t offer an FSA) and advise him to then immediately pull the money back out of his FSA to be reimbursed for their therapy expenses. By the end of December 2024, all $3200 would have cycled in and out of Eddard’s FSA and this will save them over $1,000 on their 2024 tax bill.
Tips for Using an FSA Effectively
To maximize the benefits of using an FSA, consider the following tips:
- Estimate your annual medical expenses: This will help you determine how much to contribute to your FSA. Check out this website for a really long list of qualified medical expenses that are reimbursable
- Review your FSA plan: Understand the rules of your employer's FSA plan.
- Keep track of your expenses: Maintain a record of all eligible expenses so you can submit accurate reimbursements.
- Consider a health savings account (HSA): If you have a high-deductible health insurance plan, an Health Savings Account (HSA) may be an even better option for you - but that is a different blog post!
By using an FSA, you can save money on your healthcare costs and reduce your taxable income. If you are eligible for an FSA, it's worth considering whether it's the right choice for you.