What Is Eligible for FSA

Flexible Spending Accounts (FSAs) are a valuable benefit that many employers offer, allowing employees to set aside pre-tax dollars to cover eligible out-of-pocket health expenses. Understanding what qualifies under an FSA can maximize your benefits and ensure you make the most of these funds before they expire. Below is a comprehensive guide to help you navigate what expenses are FSA-eligible.

Understanding FSAs

What Is an FSA?

A Flexible Spending Account (FSA) is an employer-sponsored benefit that lets employees use pre-tax dollars to pay for eligible health-related expenses. The key advantage of an FSA is the tax savings, as it reduces your taxable income and effectively saves you money on expenses you're likely to incur anyway.

Contributions

Employees determine an amount they wish to contribute from their salary (up to a maximum limit set by the IRS, which is $2,850 for 2022). These contributions are subtracted from your salary before taxes are applied, providing direct savings.

Use-It-or-Lose-It Policy

An important aspect of FSAs is the "use-it-or-lose-it" rule. Typically, any funds you do not use by the end of the plan year are forfeited. Some plans offer a grace period or allow a carryover of up to $570; check with your employer for specific details.

Eligible Medical Expenses

The IRS sets forth specific guidelines on what qualifies as an FSA-eligible expense. These are generally based on out-of-pocket healthcare costs that are not reimbursed by insurance. Here are the broad categories:

Medical Expenses

Medical expenses are the most common forms of FSA-eligible costs. They include:

• Doctor Visits and Co-pays: Costs related to appointments and consultations.
• Hospital Services: Expenses incurred during hospital visits or stays.
• Surgery: Both elective and essential surgeries that are not purely cosmetic in nature.

Prescription Medications

• Prescription Drugs: Any medication prescribed by a healthcare provider.
• Insulin: Coverage for diabetic supplies, including insulin, is standard.

Dental and Vision Care

• Dental Services: Costs for cleanings, fillings, and procedures such as root canals.
• Vision Care: Expenses related to eye exams, glasses, contact lenses, and their solutions.

Over-the-Counter (OTC) Medications

The CARES Act of 2020 expanded FSA-Eligibility to include over-the-counter medications without a prescription, long restricted in prior years. Examples include:

• Pain Relievers: Tylenol, Advil, and similar medications.
• Cold and Flu Products: Items like decongestants and cough syrups.
• Allergy Medications: Such as antihistamines and nasal sprays.

Reproductive Health

• Birth Control: Prescriptions and over-the-counter options.
• Fertility Treatments: Including IVF and associated medications.
• Pregnancy Tests: Home pregnancy kits and fertility monitoring devices.

Mental Health Services

• Therapy Sessions: Counseling from licensed mental health professionals.
• Psychological Testing: Evaluations and diagnostic testing by qualified personnel.
• Prescribed Medications: Any mental health-related prescribed drugs.

Other Eligible Expenses

Assistive Devices

• Hearing Aids: Including batteries and maintenance.
• Mobility Aids: Crutches, walkers, and wheelchairs.

Medical Supplies

• First-Aid Kits: Stocked kits and refills.
• Blood Pressure Monitors: Devices for home monitoring.

COVID-19 Related Expenses

In response to the pandemic, the IRS ruled that several COVID-19 related expenses might be FSA eligible:

• At-Home Testing Kits: Testing kits available over the counter.
• Masks and Sanitizers: Masks and hand sanitizers purchased for health safety.

Non-Eligible Expenses

Despite the broad range of eligible items, certain expenses are not covered by FSAs:

• Cosmetic Procedures: Surgeries or treatments purely for appearance.
• Gym Memberships: Unless prescribed for a specific medical condition.
• Elective Treatments: Procedures not deemed medically necessary.

Table: Examples of FSA-Eligible vs. Non-Eligible Expenses

FAQs

1. Can I use my FSA for family members?

Yes, FSA funds can be used for expenses incurred by your spouse or dependents.

2. Can I use FSA funds for insurance premiums?

No, FSAs cannot be used to pay insurance premiums.

3. What happens to unused FSA funds?

Typically, unused funds are forfeited at year’s end unless a carryover or grace period is in place.

4. How do I submit a claim for reimbursement?

Most FSAs offer a debit card for direct payments. Alternatively, claims can be submitted for reimbursement through your plan provider's online portal, with appropriate documentation.

Optimizing FSA Usage

To maximize your FSA benefits:

• Plan Contributions Wisely: Consider regular expenses and any anticipated out-of-pocket medical costs.
• Monitor Usage: Keep track of spending throughout the year to avoid end-of-year depletion.
• Stay Informed: Understand your employer's specific rules around grace periods or carryovers.

Conclusion

FSAs are a beneficial tool for managing healthcare costs while reducing your taxable income. By understanding eligible expenses and effective planning, you can make the most of your FSA while avoiding the pitfalls of unused funds. For further information, consult your plan administrator or refer to the IRS guidelines on Publication 969 for a comprehensive list of eligible expenses.

Explore additional resources on our website to enhance your understanding of FSAs and maximize your healthcare savings strategy.