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Overview
What is a Flexible Spending Account (FSA)?
An FSA is an employee benefit program that allows you to set aside money on a pre-tax basis for certain kinds of common expenses for you and your eligible dependents. With an FSA, you can reduce your taxes while paying for services that you’d purchase anyway.
There are two types of FSAs:
The healthcare FSA is for healthcare expenses not paid by insurance, including exams, co-payments, deductibles, eyeglasses, contact lenses and dental expenses. The dependent care FSA is used for dependent care expenses you incur so you (and your spouse, if you’re married) can work or look for work, or your spouse can attend school full-time (ex: day care for a child).
How will an FSA save me money?
An FSA lets you set aside money for eligible expenses before your employer deducts taxes from your paycheck. This means the amount of income your taxes are based on will be lower resulting in a tax savings.
Here’s an example:
| Annual Savings Example* |
With FSA |
Without FSA |
| Annual Pay |
$35,000 |
$35,000 |
| FSA pre-tax contribution |
($ 1,500) |
0 |
| Federal income and Social Security taxes |
($ 7,107) |
($ 7,597) |
After-tax dollars spent on eligible expenses |
0 |
($ 1,500) |
| Spendable income |
$26,393 |
$25,903 |
FSA pre-tax contribution |
$490 |
|
*Sample tax savings for a single taxpayer with no dependents. Actual savings will vary based on your individual tax situation. Please consult a tax professional for more information.
How much should I contribute?
Contributions are unique to your healthcare and dependent care situation. To get some idea on how much you should contribute, check out our FSA Calculator.
Should I sign up?
If any of the following apply to you, you should consider enrolling in an FSA.
Healthcare
Generally you can save significantly with an FSA if you or your dependents:
- Have out-of-pocket expenses like co-pays, coinsurance, or deductibles for health, prescription, dental or vision plans;
- Purchase over-the-counter medications, such as pain or allergy relief and first aid treatments;
- Have a health condition that requires the purchase of prescription medications on an ongoing basis;
- Wear glasses or contact lenses; or
- Receive orthodontia treatments, such as braces or have dental expenses not covered by your dental insurance.
Dependent Care
The Dependent Care FSA is designed for specific situations. You can elect a Dependent Care FSA if you and your spouse (if married) are working or in school, and:
- Your dependent children under age 13 attend day care, after-school care or summer day camp; or
- You provide care for a person of any age whom you claim as a dependent on your federal income tax return, and who is mentally or physically incapable of caring for himself or herself.
See the SHPS' Flexible Spending Account Eligible Expense Guide (pdf) for a more comprehensive list of allowable expenses.
What is a Limited FSA (LFSA)?
Some employers offer both an FSA and a health savings account (HSA) If you are enrolled in an HSA, you might also be able to enroll in an LFSA. An LFSA is similar to a regular FSA in that it lets you set aside money on a pre-tax basis for healthcare expenses. However, it is limited to dental and vision expenses so that it complies with HSA requirements.
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