Flexible Spending Accounts (FSAs)
Expenses such as deductibles and copays can quickly add up, and dependent daycare or elder care expenses can be even more expensive. Flexible Spending Accounts (FSAs) are a tax-free way to pay health care and dependent care expenses you would typically pay out-of-pocket. The contributions you set aside are not taxed, so you save money.
Each year you would like to participate in the FSAs, you must elect the amount you want to contribute to either or both of the FSAs. Deductions will come from your paychecks in equal installments throughout the year and be deposited into your account(s). You may contribute $2,750 to a Health Care FSA. You may contribute up to $5,000 ($2,500 if you are married and file your taxes separately) for a Dependent Care FSA. Both accounts function separately.
Important Rules to Keep in Mind:
FSAs offer sizable tax advantages. But these accounts are subject to strict IRS regulations, including the following:
- The IRS has a strict “use it or lose it” rule: If you do not use the full amount in your FSAs by the end of the plan year you will lose any remaining funds.
- Once you enroll in the FSAs, you cannot change your contribution amount during the year unless you experience a qualified status change.
- You cannot transfer funds from one FSA to another.