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An FSA the Easy Way

Kelly Ann Butterbaugh

Investment strategies and mutual funds are often over my head, but managing my flexible spending account (FSA) is easier than I planned and worth every minute of the effort.


What is it?

In layman's terms, an FSA is an account created to pay for medical needs. Money is deducted from your paycheck each week before taxes. When you spend money on a medical item such as a doctor's visit, you apply to have that money refunded to you from your FSA. Usually people consolidate the month's medical spending into one claim to the FSA, and they receive a check for the total amount.

Why do it?

The main reason for setting up an FSA is to pay less income tax. Since the FSA is deducted from your salary before taxes, it lessens your yearly income often putting you in a lower tax bracket. However, for those who have trouble putting money away, the FSA is a way to put a portion of each paycheck away and then receive it back by the end of the year as a large "bonus" check. There are no taxes paid on the money reimbursed from the FSA.


How do I do it?

At the end of the year most employers will open up the window to set up next year's FSA. In order to properly use the program you must assume your medical spending for the upcoming year. The best and most accurate way to do this is to keep the medical receipts from the previous year and add them. The company providing the FSA will provide you with a list of what constitutes an acceptable FSA withdrawal and what does not. Remember, you're tallying only what you pay out of pocket not the actual cost of the services. Use this checklist to help:

  • How much do monthly medications cost times twelve?
  • How often do you schedule regular doctor visits?
  • Include any yearly visits to specialists.
  • What is your yearly eyewear cost?
  • What are your dental expenses?
  • Are there other therapeutical expenses such as therapy or chiropractic visits?

  • Do you rent any medical equipment?
  • Is anyone anticipating surgery or other procedures?

What should I watch for?

While the FSA is fairly easy, there is one major pitfall. You cannot have any of the money in the account refunded if it is not used. In other words, don't put more in than you'll use within the year. You must calculate carefully. My rule of thumb is that once I come up with a total I subtract $200 to find my total yearly contribution. Keep in mind that you can only claim expenses from the current year. When my company denied my claim for my monthly hospital payment for my son's birth the year before, stating that the date of service did not fall in the current calendar year, it looked like I would give Uncle Sam $600 that year.

With planning the FSA will become a fiscally safe account as well as a flexible spending account.

About The Author: Kelly Ann Butterbaugh is a freelance writer who regularly contributes to a variety of magazines as well as online newsletters. She teaches writing in the public school as well as at the collegiate level. Contact her at Englishteach@rcn.com or visit her website at users.rcn.com/.../Writer


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August 23, 20060 found this helpful

I miss having FSA. My husband now teaches in Georgia and for some reason not a lot of school districts have FSA available. I wish that it would be a gov't mandate that employers offer FSA along with any cafeteria plan that they may offer. It is free to employers so I do not understand why people would refuse to have it as part of the benefits package. Does any one have any ideas on how to convince a school board and achool administration to consider FSA. We are losing several hundred dollars a year by not having this available. We have 4 kids and I have health challanges.

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