Reap the benefits of your FSA
When you set up an FSA, your employer takes money out of your paycheck before taxes. Then you draw on the funds during the plan year to pay for qualified expenses.
Make sure to set aside only as much as you'll use — with an FSA, you typically can only use the money for expenses during the current plan year. Some employers may offer a grace period, which allows extended access to FSA funds.
Your employer determines what types of expenses are qualified within guidelines defined by the IRS. Most employers' plans cover:
- Medical expenses like deductibles and copayments
- Out-of-pocket prescription costs
- Dental expenses
- Vision services
However, your company may not include all of the categories above. In addition, you can't use the money for experimental treatments, cosmetic procedures, or insurance premiums.
You have access to the full annual amount of your healthcare FSA — even money that hasn't been deducted from your paycheck yet — on the first day of the plan year.
Some employers also offer a separate FSA for qualified dependent care expenses, such as childcare or adult day care. You can set up a healthcare account, a dependent care account, or both types, depending on your situation.
As of January 1, 2011, over-the-counter (OTC) medications such as pain relievers, cough syrup, and allergy medicines will require a prescription to be eligible for reimbursement from an FSA or Personal Care Account (PCA). The HumanaAccess Card cannot be used to purchase OTC medications.
Example of how FSAs work
Last year, Laura made $28,000 and put $1,500 in her healthcare FSA. The example below shows how much she saved by using the pre-tax money for qualified health expenses. Without an FSA, she would have paid for these expenses from her take-home pay, which she paid taxes on.