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What Is Covered By FSA

A Flexible Spending Account (FSA) is a valuable benefit offered by many employers, allowing employees to set aside pre-tax dollars for qualifying healthcare and dependent care expenses. Understanding what is covered by an FSA can help maximize its benefits and potentially save you money. This article will explore the breadth of FSA coverage, examples of eligible expenses, limitations, and common questions about FSAs.

Understanding FSAs

FSAs are primarily health-related accounts, though they can sometimes be used for dependent care. There are mainly two types:

  1. Health Care FSA: Catered towards medical, dental, and vision care expenses not covered by insurance.
  2. Dependent Care FSA: Used for reimbursing dependent care costs that allow you to work, like daycare.

In both cases, contributions are pre-tax, meaning you’ll reduce your taxable income, potentially leading to substantial savings.

General Coverage Overview

Eligible Health Care Expenses

An FSA can cover a range of medical expenses that the IRS considers deductible medical expenses. Here is a look at the various categories:

Medical and Dental Services

  • Copays and Deductibles: Payments you make for medical services and prescription medications.
  • Dental Services: Including exams, cleanings, X-rays, fillings, crowns, and orthodontia like braces.
  • Vision Care: Coverage includes eye exams, eyeglasses, contact lenses, and laser eye surgery.

Prescription Drugs and Over-the-Counter Items

  • Prescription Medications: Must be prescribed by a doctor.
  • Over-the-Counter (OTC) Medicines: With legislative changes, OTC drugs can be purchased with FSA funds without a prescription.
  • Menstruation Products: Pads, tampons, and related products.

Medical Equipment and Supplies

  • Medical Devices: Such as crutches, glucose monitors, and blood pressure kits.
  • Supplies: Bandages, first-aid kits, and contact lens solution.

Preventive Care and Wellness

  • Vaccinations: Immunizations that could include flu shots and travel vaccines.
  • Smoking Cessation Programs: Including aids and programs to help quit smoking.
  • Weight Loss Programs: Only if prescribed by a physician for a diagnosed medical condition like obesity.

Eligible Dependent Care Expenses

Dependent Care FSAs are designed to reimburse daycare expenses for children under 13 or for adult dependents who are incapable of self-care. Here’s what may be covered:

  • Daycare Centers: Includes preschools and child care centers.
  • Before/After School Programs: Childcare outside of regular school hours.
  • In-Home Care: Payments to babysitters or nannies.
  • Senior Daycare: For adult dependents who need supervision.

What’s Not Covered by an FSA

While FSAs offer broad coverage, they don’t cover every expense. Here are some examples:

  • Insurance Premiums: FSAs cannot be used to pay health insurance premiums.
  • Elective Cosmetic Procedures: Such as teeth whitening and cosmetic surgeries not medically necessary.
  • Long-Term Care Expenses: For nursing homes or custodial care not related to specific medical treatment.

How to Use Your FSA

Tracking and Submitting Claims

To ensure reimbursement, it’s crucial to follow these steps:

  1. Verify Expense Eligibility: Use IRS Publication 502 as a reference for a detailed list of allowed expenses.
  2. Keep Receipts and Documentation: Maintain records of all purchases and services in case of an audit or if your FSA provider requires them.
  3. Submit Claims Promptly: Most providers allow claims through online portals or mobile apps. Claims should be submitted before the deadline each plan year.

Strategies to Maximize Your FSA

  • Estimate Carefully: Use previous years’ expenses to forecast your FSA contributions to avoid losing unused funds.
  • Time Large Expenses: Plan significant medical or dental procedures within the plan year to utilize all available funds.

Common Questions and Misconceptions

Are all FSAs the same?

No, FSAs can vary based on your employer’s offerings. While the general rules are the same, employers have discretion over specific eligible expenses and carryovers.

What happens to unspent FSA funds?

Typically, FSA funds are “use-it-or-lose-it,” meaning unused funds at the year’s end may be forfeited. However, some plans offer:

  • Grace Period: Up to 2.5 extra months to use the prior year’s funds.
  • Carryover Options: Some plans allow you to roll over up to $500 into the next year.

Can FSA funds be used for family members?

FSA funds can be used for expenses incurred by you, your spouse, and your dependents as long as the expenses meet IRS requirements.

Leveraging Additional Resources

For further reading and to deepen your understanding of FSAs, consider reviewing these resources:

  1. IRS Publication 502: Offers detailed information on deductible medical expenses.
  2. Healthcare.gov: Provides insight into using FSAs effectively with high-deductible health plans.
  3. Society for Human Resource Management (SHRM): Regular updates about FSA changes and advantages.

Embrace the opportunity to make the most of your FSA by planning your medical and dependent care expenses wisely. By understanding what is covered and keeping abreast of legislative changes, you can ensure you reap the full benefits your FSA offers.

Discover more about financial planning strategies and employee benefits by exploring our other articles. Your journey toward informed healthcare financial decisions continues here.