Flexible Spending Accounts

What is a Flexible Spending Account

A Flexible Spending Account (FSA) is a way for you to put money aside tax-free for important and necessary expenses.  A flexible spending account can potentially save you thousands of dollars in taxes on April 15.  Put simply, a Flexible Spending Account involves an employer setting aside part of your earnings to pay for eligible expenses before taxes are taken out, and in doing so this lowers the overall tax you owe at the end of the year.

There are primarily three types of FSA:

1. The Health Care Reimbursement Account (also known as Medical FSA, Medical Expense FSA, or simply Health FSA), where qualified medical expenses are put aside and then spent throughout the plan year.

2. The Dependent Care Flexible Spending Account (DCA), where qualified child and other day care expenses can be put aside.  While almost always used for children, they can also be used for “adult day care” for elderly dependents.

3. The Health Savings Account (HSA) which is different from a Health Care Reimbursement Account in that it is used specifically for high end-user cost health insurance plans and can be rolled over year over year.

(Note that funds cannot be transferred between different types of FSA if you have more than one type, a common confusion)

There are two very important limits you must know about when signing up for a Flexible Spending Account that is for dependent care or health reimbursement:

1. Most importantly, you must spend all the money put within the “plan year” on eligible expenses, which is usually company’s fiscal year but not always.  The money left in the account at the end of the “plan year” not spent on eligible expenses is forfeited back to the company, although sometimes there is a grace period at the end.

2. Second, you must make sure that what you spend are eligible expenses.  A description of the Flexible Spending Account eligible expenses might vary a little from company to company, and even though they are generally logical and fair, it is vital that you check out the full listing of a FSA plan’s inclusions, exclusions, and limits before signing up.

Your company’s Flexible Spending Account will likely save you money, and the plan administrator should be able to show you how!

Our site will provide up to date information and advice about Flexible Spending Accounts, including any tax law changes that affect limits and eligible expenses as well as different innovations that FSA companies roll out.  If you want more detailed information about a particular type of FSA, from dependent care flexible spending accounts to health care reimbursement account to health savings accounts, we will have specific pages dedicated.

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About Us and this Website

We are an independent website dedicated to providing you with accurate and unbiased information and advice about flexible spending accounts of all types, including health reimbursement accounts, dependent care FSA accounts, and health savings accounts.  We are not directly affiliated with any provider of flexible spending account management, nor do we accept direct promotion from these agencies, so we can ensure that what we provide is truly unbiased and independent.  We have no stake in your choice – we do not gain or lose no matter whether you choose any type of FSA.

More and more, companies are offering flexible spending accounts, often referred to as cafeteria plans, for their employees.  These FSAs present the possibility of a win-win, since there are tax advantages for both the employer and employee if done correctly.  That said, it is vital that people who choose any type of flexible spending account completely understand the rules and potential pitfalls before signing up.  Most FSA companies do a nice job explaining everything, but it can still be a bit confusing and overwhelming, and we felt that a fully independent website in this niche would be helpful.

So, in summary. Flexible Spending Accounts, including both health reimbursement account and dependent care flexible spending accounts are an excellent choice for many people, perhaps including you, but for some there are other choices or they may not be the most advantageous route.  And health savings accounts are an excellent plan for those with certain health insurance plans.  Sometimes a flexible spending account is a good idea, but only when modified in some way.  Finally, for some people a certain very particular approach to managing their flexible spending account will maximise their potential financial benefit – for example you absolutely need to know what the eligible expenses and limits are and make sure you will spend out your withholding.  We will cover all of these topics here and update our site often as things change in the world of FSAs.

Here are some of the pages from our site (you can navigate in the listing to the left or in the drop-downs above to these and other pages):

Our Blog covers the very latest information and advice about flexible spending accounts including your health reimbursement account and dependent care FSA

Health Reimbursement Accounts specifically covers this type of FSA in detail including eligible expenses and limits

Dependent Care FSAs specifically covers this type of FSA also including eligible expenses and limits

Travel FSAs describes the lesser known types of flexible spending account

Spending Out Your DCA Flexible Spending Account and Spending out your Health Reimbursement Account help you ensure you don’t end up with a balance in your dependent care FSA or health reimbursement account

Dependent Care Account Eligible Expenses and Health Care Reimbursement Account Eligible Expenses may be very helpful in planning and your operations of your FSA.

Health Savings Accounts goes over who these accounts are best for and how to use them if you qualify

We also welcome all feedback from our visitors, though we do screen out comments that we feel may be biased toward the FSA industry dual to a dual role of some sort.  If you’ve had a flexible spending account, whether it was a dependent care FSA, health reimbursement account, health savings account or another type, and want to share your experience, please feel free.  We want to hear from those for whom it was an excellent choice, as well as those who may have learned from a flexible spending account mistake of some sort.  We will post questions people may have about their health care reimbursement account, health savings account or dependent care flexible spending account but cannot guarantee answers to all of them, and we cannot guarantee that answers provided by other visitors are completely accurate.

Flexible Spending Account Disclaimer

Your unique financial situation may be complex and to get the most accurate advice about whether to pursue a flexible spending account you should talk to a financial advisor about your own situation.  At the very least, run scenarios through whatever tax preparation software you use, and also look up issues specific to your own situation.  Flexible spending accounts carry some financial risk, especially if your financial situation is either complicated or likely to change in some way.  We cannot possibly factor in your unique situation when offering general advice and information here.

Flex Spending Account Website Copyright and Legal

Flex Spending Accounts provides fully independent and original content regarding Flexible Spending Accounts – Dependent Care FSAs Health Reimbursement Accounts, Health Savings Accounts, and others. We pride ourselves on being fully unbiased and not connected to any company offering these products. For these reasons all information contained here is protected by copyright, and we reserve all rights.  At times we might allow other with websites covering similar content to use our material, but only with prior permission and proper attribution.  Please contact us if you are a provider of unbiased information and would like to use information contained here.

FSA Update

Every year we watch to see whether new rules or regulations are put into place regarding FSAs, whether dependent care flexible spending accounts, health care reimbursement accounts, or health savings accounts.  Since so many people have flexible spending accounts, politicians may be unlikely to make any significant changes in these popular programs, especially in a reasonably strong ecomony.  Still there may be those that want to trim along the edges, perhaps making those at higher incomes not qualify, lowering the amount that can be put aside, or changing the rules to make these accounts more restrictive.  These changes are unlikely right now but it is not out of the question that they may pop up.  We will make sure to keep on top of these possibilities so please make sure to check back.

Of course there is also the possibility that flexible spending accounts, and again more specifically your dependent care flexible spending account, health reimbursement account, or health savings account could move in the other direction – higher amounts that can be put aside for eligible expenses or looser rules as far as what can be included.  For example, many would argue that in much of the country $5,000 for dependent care eligible expenses, especially for more than one child or for an infant is far too low.   And with medical costs rising the $2,500 limit in a health reimbursement account may be too low especially for a larger family.   That said, just as we do not expect a tightening of the rules soon, the economy is not strong enough and the political environment generous enough that we are likely to see a loosening either.

We hope our pages help answer some of your questions about your FSA, and that this page helped answer the basic question “What is a flexible spending account?”

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