What is a Flexible Spending Account?
A flexible spending account is a benefit plan that sets aside pre-tax money from a person’s paycheck that they can spend on healthcare expenses that are not covered by their health insurance plan. A person can save up to nearly forty percent of each dollar depending on your tax bracket as long as you spend the money on qualified health costs.
What Steps are Involved in Setting up a Flexible Spending Account?
Flexible spending account is a benefit plan provided by the employer. It is voluntary and you agree to a pre-tax reduction in your paycheck. You decide the amount of money that you wish to set aside and it is divided by the number of checks you receive per year. Your employer can also fund the contribution as long as the employer specifies the amount of the contribution in writing.
Each year there will be an open enrollment period. You have to sign up for the flexible spending account and choose the amount of money to put into the account during this time. It usually coincides with the same time as signing up for your health insurance. This occurs most of the time around November to mid December.
How much can I Put into the Flexible Spending Plan?
The maximum amount is usually $5,000.00 but can vary by employer and state. It is $2,500.00 if married and filing tax returns separately.
How do I Use my Flexible Spending Account?
You must submit written proof or bill for the qualified expense that occurred in order for the money to be distributed. You can only use the money during the plan’s twelve month coverage period. The date of when the expense occurred is the determining point of time not when you are billed or when the service was payed. You cannot receive any money before the service or purchase of a qualified item. IRS Notice 2005-42 allows employers to add two and ½ months of extended time immediately following the end of the plan year in which employees may use any of the remaining money from the previous year for any qualified expenses occurring during the extended period of time.
What Things are Covered by Flexible Spending Accounts?
Common things covered related to eyecare are cosmetic eyelid procedures, Lasik, premium intraocular lenses, prescription glasses, prescription sunglasses, and contact lenses.
Most plans end on December 31 and it is important to make sure that you have used your money in your flexible spending account by that time. There is an exception if you go past your twelve month coverage period.