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Flexible Spending Account Benefits

Flexible Spending Accounts, also known as FSAs, let you contribute money to an account that you can then use on eligible health care expenses. FSA contributions have tax benefits and allow you to get reimbursed for expenses incurred by you or qualifying dependents. When you enroll in an FSA with your employer, you decide how much money you want to contribute at the beginning of the year. This is important because you forfeit any money you don't use at the end of the year, so plan accordingly.

  1. Tax Savings

    • According to the U.S. Office of Personnel Management, when you contribute to an FSA, you can get 20 to over 40 percent in tax savings compared to what you would normally pay for out-of-pocket health care and dependent care expenses. This means with an FSA, you can reduce your taxable income and use those tax savings to pay for other expenses. For example, if you make $25,000 per year and contribute $2,000 to your FSA, you get a tax savings of $500 because your taxable income is only $23,000. So your disposable income if you joined the FSA and contributed $2,000 would be $17,250 as opposed to $16,750.

    Reimbursement for Many Types of Health care Product and Services

    • FSAs allow you to get reimbursed for a variety of health care expenses. For example, you can use your FSA account to pay for co-pays and lab tests at health care provider visits, surgical expenses at hospitals, and physical therapy. You can also purchase over-the-counter health-related products such as cold medicines, antacids, allergy medicines and pain relievers. It's important to note that starting Jan. 1, 2011, many over-the-counter health care products will only be eligible for reimbursement if you get a prescription from your physician.

    Free to Join

    • In 2003, President Bush enacted the National Defense Authorization Act. This law stated that companies and agencies participating in the federal FSA program had to cover all administrative costs for their enrolled employees. This means that joining an FSA won't cost you anything.

    Dependent Care Flexible Spending Account

    • A Dependent Care Flexible Spending Account, or DCFSA, is a type of FSA that lets you get reimbursed on a pre-tax basis for child care or adult dependent care expenses. This is another benefit of a flexible spending account that allows you to contribute $5,000 if you are a single individual or you are married and filing a joint tax return with your spouse.

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