FSA

Is Contributing to an FSA Worth It?

Is contributing to a Flexible Spending Account (FSA) right for you?   

Selecting the right healthcare plan can be incredibly confusing. With so many options available, how do you choose what is right for you? Your employer may have a plethora of options available to choose from and a Flexible Spending Account (FSA) may be one of them. How do you decide if contributing to an FSA is right for you? HPFY has the information you need to determine if contributing to an FSA is worth it.  

What Exactly Is a Flexible Spending Account?  

Healthcare plans are numerous and complex. Choosing one that’s right for you, your family, or your lifestyle can be an arduous task. For employees whose employers provide a Flexible Spending Account or FSA, understanding what they are may help you decide if contributing is a good idea.  

An FSA is a special account you contribute to in order to cover copayments, deductibles, some drugs, and other qualified healthcare costs. Also, since these contributions are pretax, they can reduce your taxes. Benefits of a Flexible Spending Account according to the IRS can include:  

• Contributions made by your employer can be excluded from gross income  
• No employment/federal income taxes are deductible from contributions  
• Reimbursements may be tax-free for qualified medical expenses  

You can use FSA funds to pay qualified medical expenses before contributions are made  

Contributions to a Flexible Spending Account can also be used for applicable dental or even vision benefits. The IRS sets the contribution limits for each FSA. In 2022 the IRS set contribution limits at $2850 for an individual; for 2023, they have increased this amount to $3050, further for 2024 the amount has been raised to $3200. Those qualified for FSA reimbursement include:  

• You and your spouse  
• Dependents on your tax return  
• Your child under the age of 27 at the end of the tax year  

Should I Contribute or Not?  

For employees whose employer offers a Flexible Spending Account, the question is - “is it right for me?” Some of the benefits for employees contributing to an FSA include:  

• Employee/employer contributions are tax-free  
• No IRS tax forms need to be filed for the FSA  
• It can be offered in conjunction with other employer-sponsored health plans  
• It can be rolled over to the next year with limited options  
• Reduces employee tax contributions  

While you can use your FSA for qualified healthcare expenses, each employee needs to know what the FSA cannot be used for. Some of these include:  

• Healthcare premiums  
• Amounts paid for long-term care coverage or expenses  
• Amounts covered by another health care plan  

Employees must also consider the downsides to each plan. For instance, each plan is different, and employees must learn/understand how to use their plan properly.  

Also, after a grace period or carryover, employees lose all contributions to their FSA. This can require some foresight when planning medical expenses, if possible.  

So, use it or lose it!  

HPFY labels what products are FSA eligible. Weigh the pros and cons to see if a Flexible Spending Account (FSA) is right for you. 

 

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