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If you’re a first-time medical FSA participant, you may not be familiar with FSA definitions and rules. We’ve provided a list of the top things a first-time medical FSA participant should be aware of in order to take full advantage of their FSA.
What is a Medical Flexible Spending Account (FSA)?
A medical FSA is a tax-advantaged employee benefit that gives participants the opportunity to save on out-of-pocket medical, dental and vision eligible expenses. They are employer-owned accounts. You can enroll in a medical FSA during open enrollment, when you’re hired at a new job or when you experience a status change.
How a Medical FSA Works
After you’ve enrolled in a medical FSA through your employer, you then choose how much to contribute to your FSA. Your annual election amount comes out of your paycheck and the pre-tax dollars are deposited directly into your FSA to be used on eligible expenses. The 2024 contribution limit for medical FSAs is $3,200 per year.
How to Save With a Medical FSA
Medical FSAs offer a great opportunity to save on general-purpose health expenses such as prescription drugs, insurance copayments and deductibles and medical devices. Whether you have planned healthcare needs coming up this year or you want to be prepared for unexpected expenses, using tax-free FSA funds will help you lower your healthcare costs.
Since your FSA contribution is taken out of your paycheck pre-tax, participating in a medical FSA decreases your taxable income. Not only will you have money set aside for medical, dental and vision expenses, you’ll also be able to take home more money as well!
What are the Eligible Expenses?
You might be surprised by the variety of products and services you can spend your medical FSA dollars on. If you have an Advantage Administrators benefits card, all you have to do is swipe your card to have eligible expenses approved. Just make sure you’re using your card somewhere that offers an Inventory Information Approval System (IIAS) or meets the IRS’ 90 percent rule.
Some of the most popular medical FSA eligible expenses are:
How Does Reimbursement Work?
If you choose to pay out-of-pocket for an eligible expense or if the claim is not automatically approved when you swipe your benefits card, Advantage Administration participants will need to submit a reimbursement claim through their online account or using a claim form. The IRS requires you to submit documentation of the FSA claim to prove it was an eligible expense. This documentation can typically be sent through an online account, mobile app, fax or mail. Once the claim is approved, you’ll receive reimbursement through your benefits card, direct deposit or check.
What is the Use-or-Lose Rule?
What happens with any unused medical FSA funds you have at the end of the year? The IRS use-or-lose rule states that you must spend your FSA funds within the FSA’s plan year. That means, if you don’t spend most or all of your FSA funds by the end of the year (depending on your FSA’s individual plan rules), those unused funds are forfeited to the plan. So, if you’re on the more common January-to-December plan year, mark December on your calendar as the month to spend down your remaining FSA funds.
The IRS does allow employers the option to offer an FSA carryover option to their employees. An FSA carryover allows you to carry over medical FSA funds from one plan year to the next, meaning you won’t have to worry about spending all of their FSA funds before the end of the year. In fact, if your employer offered the maximum $640 carryover from a 2024 plan, you could carry up to $640 from 2024 to 2025.
The information in this blog post is for educational purposes only. It is not investment, legal or tax advice. For legal or tax advice, you should consult your own counsel. To stay up to date on benefits trends and insights, subscribe to our blog.
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