Medical Flexible Spending Account Rules

Some employers provide flexible spending plans to workers that allow them to save money to pay for eyeglasses, medications and other health-care costs. Money used to fund the plans is deducted from employees' salaries before taxes are applied, which helps reduce the income taxes employees have to pay.

Function

• Flexible spending accounts allow employees to have a specified amount of money deducted from their paychecks that's set aside to pay for health-care costs not covered by their health insurance plans. Account holders must decide in advance how much they want to contribute to their accounts each year. One downside is that account holders can't roll over remaining balances, so people forfeit any money left in their accounts at the end of each year. The 2010 U.S. Patient Protection and Affordable Care Act places additional restrictions on flexible spending accounts.

Contribution Amounts

• Flexible spending accounts usually don't have limits on the contribution amounts as of 2011, so account holders can contribute as much as they can afford to their accounts to pay for anticipated health-care costs. However, some employers' flexible spending plans do place caps on annual contributions. The Patient Protection and Affordable Care Act reduces the maximum contribution amount to $2,500 per year, beginning in 2013.

Medication Expenses

• The 2010 health-care reform law also limited the types of medications purchased through flexible spending accounts. In 2011, people no longer can use their account funds to buy nonprescription medications. Furthermore, account holders must submit a prescription and receipt to their account provider to recoup costs for medications. However, a 2010 article by "Kiplinger's Personal Finance" magazine editor Kimberly Lankford states people could ask their doctors for prescriptions for pain relievers, allergy medications and other medicines they need instead of using nonprescription varieties. The prescriptions would allow people to get reimbursements for medications through their flexible spending plans.

Children's Costs

• You may be able to use flexible spending account funds to cover health-care costs for your children in 2011 even if you no longer claim them as dependents on your tax returns. Past restrictions didn't allow parents to use their account funds for their children's medical expenses unless the children were dependents. However, the Kiplinger article indicates that many employers allow parents to include children younger than age 27 in their account expenditures, even if the children aren't dependents.