What is an FSA, and how does it work?

A flexible spending account (FSA) is a special benefit plan offered by many employers as a way to save money on out-of-pocket medical, dental and vision expenses.

If you are enrolled in an FSA, you contribute pre-tax dollars automatically withdrawn from your paycheck to the account either in a lump sum at the beginning of the year or smaller sums throughout the year. You can then access those funds during that year to pay for approved health care-related expenses that crop up and aren’t covered by insurance. 

Some plans also offer grace periods or rollover options, although it’s less common with FSAs and only allows a maximum of only $550 to be rolled over for 2021. Grace periods allow you to access unused funds for a specific period of time after the plan year ends, while rollover options allow you to bring a certain amount of unused funds into the account for the next plan year.

Am I eligible for an FSA?

Anyone is eligible for an FSA, as long as they are employed by a company that offers them. Flexible spending accounts are available under several types of insurance plans. You can enroll in an FSA along with your insurance plan, or you can have an FSA alone, for example, if you’ve opted out of your company’s insurance benefits because you are included in your spouse’s plan.

How much can I contribute to an FSA?

For plan years 2020 and 2021, the maximum FSA contribution for an individual account is $2,750. You can contribute up to $5,000 to a Dependent Care FSA. During open enrollment and certain qualifying life events, you can also change the amount of your contribution.

An FSA provides a great opportunity to save money you would have otherwise paid in taxes, since contributions are exempt from federal income tax, federal unemployment tax, and Social Security and Medicare taxes. 

It’s important to note that FSAs are owned by your employer, so if you change jobs, you won’t be able to transfer your contributions to a new account. 

What is covered by an FSA?

A flexible spending account helps pay for any medical, dental or vision care expenses that are considered medically necessary but are not covered by insurance. 

FSA eligible expenses include copays and deductibles, exams, certain surgical procedures, prescription eyeglasses, sunglasses and contact lenses, medical equipment and much more. You may be pleasantly surprised to learn all of the vision care services and products that are covered by an FSA.

How does an FSA work?

Funds for the entire year generally become available on January 1 and expire on December 31 unless your company offers a grace period or rollover of up to $500. Employers can provide one or the other (extension or limited rollover) but not both.

Many providers offer an FSA card with which you can make purchases directly. These FSA cards act just like debit/credit cards. You can pay for FSA-eligible items and services online, in stores and at any health care facility that accepts credit or debit cards. 

If your plan doesn’t issue flex spending or debit cards, you can submit claims to your FSA provider (through your employer) for reimbursement. You’ll need to provide detailed, itemized receipts for any services, products and prescriptions, along with proof that you’re not submitting a claim for any costs already covered by your insurance plan. 

Some plans may make direct payments to healthcare providers.

For certain expenses to be covered, you may need to obtain a doctor’s prescription or submit a letter from your eye doctor verifying the item is necessary for the diagnosis, prevention or treatment of a disease or condition. 

People with light sensitivity, for instance, may be able to use FSA funds for non-prescription sunglasses.

What FSA steps should you take?

Your first point of contact is your employer. Review the details of your plan so you understand exactly what is and isn’t covered. 

Once you’ve checked your FSA’s guidelines, it’s time to make a doctor’s appointment — or start shopping.

You may want to browse frames or lens types online before visiting your ophthalmologist or optometrist so that you know which styles you like. You can even check an FSA store to learn about other FSA-eligible items. 

You should also be sure to save all receipts, especially if you’ll need to submit them for reimbursement. 

Having your vision examined regularly by a qualified ophthalmologist or optometrist is an important part of maintaining your overall health. Plus, wearing the right prescription eyewear can improve your comfort and ability to see, and it can also help you avoid falls and accidents.

And, paying with FSA funds may make those stylish designer frames you’ve been dreaming of surprisingly affordable.

Page published on Monday, November 9, 2020