What Does FSA Cover?

Flexible Spending Accounts (FSAs) are valuable tools that allow individuals to set aside pre-tax dollars for various qualified expenses. However, the term "FSA" might bring up questions about what expenses can actually be covered under this account. This guide aims to provide a comprehensive overview of what FSAs cover, including typical eligible expenses, account types, common misconceptions, and useful tips for maximizing FSA benefits.

Understanding FSAs

Before diving into what an FSA covers, it's essential to grasp what an FSA is and how it works. An FSA is a special account one sets up through their employer, allowing pre-tax income to be saved for specific expenses. There are mainly two types of FSAs, which include:

1. Health Care FSA

• Purpose: This account helps cover healthcare-related expenses that are not included in your standard medical insurance.
• Annual Limits: As of 2023, the contribution limit is $2,850, but this can vary annually.Always check current limits, as they can change.

2. Dependent Care FSA

• Purpose: Specifically designed to help pay for child care or dependent adult care services.
• Annual Limits: As of 2023, the contribution limit stands at $5,000 for single filers and married couples filing jointly, or $2,500 for married individuals filing separately.

3. Limited Purpose FSA

• Purpose: Typically paired with a Health Savings Account (HSA), covering dental and vision expenses.
• Annual Limits: Usually aligned with the health care FSA limits.

Each FSA type has specific eligible expenses that you can claim, which are important to understand to make the most out of your FSA.

Eligible Expenses for Health Care FSA

Health Care FSAs cover a broad range of medical expenses. It's crucial to note that only qualifying medical expenses can be reimbursed. Here's a rundown of typical eligible expenses:

Medical and Dental Expenses

• Doctor Visits: Copayments, deductibles, and coinsurance payments for doctor visits can be covered.
• Surgery: Payments for surgeries not covered by insurance, including certain cosmetic surgeries if medically necessary.
• Prescription Medications: Costs not covered by insurance, such as copayments and out-of-pocket expenses.
• Dental Treatments: Orthodontia, cleanings, and other non-cosmetic dental procedures.
• Vision Care: Prescription glasses, contact lenses, and visits to an optometrist.

Medical Supplies and Equipment

• First Aid Supplies: Bandages, gauze, thermometers.
• Durable Medical Equipment: Walkers, wheelchairs, and crutches.
• Diagnostic Devices: Blood sugar test kits for diabetics.

Alternative Treatments

• Chiropractic Services: Treatments by a licensed chiropractor.
• Acupuncture: If done by a licensed practitioner.
• Psychotherapy: Sessions with licensed mental health counselors or psychologists.

Over-the-Counter Drugs and Medications

• Pain Relievers: Ibuprofen, acetaminophen, etc.*
• Allergy Medicines: Antihistamines, decongestants.*

*Recent legislative changes have expanded these coverages, previously requiring a prescription for reimbursement.

Other Services

• Preventive Care: Vaccinations and health screenings.
• Rehabilitation Services: Physical therapy and occupational therapy.

Eligible Expenses for Dependent Care FSA

Dependent Care FSAs cover costs associated with care for dependents that allow you to work or seek work:

Child Care

• Day Care and Nursery Schools: Fees for daily care, but not kindergarten tuition.
• After School Programs: Costs for child care during after-school hours.
• Summer Camps: Day camps that facilitate parental employment are covered, but overnight camps are not.

Adult Care

• Elder Care Services: For dependents who cannot care for themselves while you work.
• Adult Day Care Centers: Facilities that provide care services to dependent adults.

Maximizing the Benefits of FSAs

To ensure you get the most out of your FSA, consider the following tips:

Plan Contributions Carefully

Understand your typical annual expenses to avoid over-contributing, as FSAs are "use-it-or-lose-it" accounts (some accounts may offer a grace period or rollover options).

Maintain Good Records

Keep thorough documentation of all expenses, as receipts and paperwork may be required for reimbursement.

Utilize Employer Resources

Consult your HR department for clarifications on your specific plan, as coverage details can vary significantly.

Stay Informed

Review annual changes in FSA regulations and contribution limits to ensure compliance and full utilization of benefits.

Common Questions and Misconceptions

Is an FSA the same as an HSA?

No, FSAs and HSAs have different rules and benefits. FSAs are employer-sponsored with annual contribution limits and typically expire at the year-end unless specific rollover options are offered. HSAs are associated with high-deductible health plans and offer long-term savings potential that carries over yearly.

Can FSA funds be used for family members?

Yes, FSA funds can cover expenses incurred by the account holder, their spouse, and dependents as long as they qualify under IRS rules.

What happens to unused FSA money?

Typically, unused funds are forfeited. However, some employers provide a grace period of up to 2.5 months or allow a limited rollover of funds to the next year, up to $570 as of 2023.

Final Thoughts

Flexible Spending Accounts provide a strategic avenue to manage specific out-of-pocket costs efficiently. By understanding what your FSA covers, you can fully leverage the tax advantages and maximize your healthcare and dependent care dollars. If you are exploring FSAs for the first time or aiming to enhance your use of these accounts, consider consulting a tax advisor or your HR professional to tailor your strategy to align with your unique financial goals and healthcare needs.