If you have a flexible spending account (FSA), you may know the basics. But if you’re like most people you probably lack a complete understanding of what it is and how a healthcare FSA works. What you do probably know are two very important facts:
- You have to use the money in the account by the end of the year or lose the balance.
- Not all medical expenses qualify for payment out of your FSA.
One piece of potentially good news: You won’t necessarily lose your contributions at the end of the year. For plans beginning in 2013, your employer can let you carry over up to $500. If you had a healthy year in 2014, you could have up to $3,050 in your account for 2015 (the $2,550 maximum you can have, plus $500). There are regulations involved, so check with your workplace to be sure your employer has instituted this change.
But it is true that not all medical expenses are created equal.
Who Is Eligible?
Before we look at what is eligible, you have to know who can claim the expenses. For some people in your family, nothing is allowable. Of course, you, as well as your spouse, are eligible. Also, any dependents you claim on your tax return as long as they didn’t file a joint tax return with their spouse, had gross income below $3,950 and possibly a few other more complicated conditions. If you or your spouse could be claimed as a dependent on somebody else’s tax return, ask a tax professional for help.
To use your FSA for medical expenses for your child, he or she must be under age 27 at the end of the tax year.
There are three big items you cannot use FSA funds to pay for: You cannot pay any health insurance premiums, expenses related to long-term care coverage or any expense covered under another health plan. In other words, you have to run all expenses through your health insurance before paying the remainder of the qualified expense with your FSA.
Enough about what isn’t covered. What’s allowable?
Which Expenses Are Eligible?
Here’s a partial list of what is considered an allowable expense. You can pay 100% of these expenses up to your FSA account balance:
– legal abortions, acupuncture, chiropractors, ambulance services, and artificial limbs or teeth
– alcoholism treatment: Expenses incurred while receiving treatment for alcoholism from a therapeutic center including meals and lodging provided during treatment. You can also pay for transportation costs to and from Alcoholics Anonymous meetings if a medical professional said that it’s necessary for treatment
– medical supplies such as bandages, wraps, crutches and braces
– breast pumps, braille books and magazines, and contact lenses
– dental treatment, eye exams and eyeglasses
– doctor visits, and most diagnostic tests and treatments ordered by your doctor
– fertility treatments, hearing aids, some home care services and hospital expenses (including meals and lodging) providing you’re there to receive medical care
– prescription medication including birth control pills are allowable expenses, but over-the-counter drugs are not. If the over-the-counter drug comes in prescription form, ask your doctor to give you a prescription instead of buying it off the shelf. Insulin is also covered
– car-modification costs: expenses incurred to modify a car for a person with disabilities, including hand controls and other special equipment
– capital improvements: costs associated with putting in a wheelchair ramp and other changes to your home to accommodate a disability
– guide dog: all costs for acquiring and training the dog, as well as expenses associated with food, grooming, veterinary care and most other expenditures
The Bottom Line
In general, if the expense was ordered by a doctor, you can pay for it using FSA funds. You have to provide documentation to the FSA administrator stating that all payments are for qualified medical expenses and not covered under a health insurance policy. Your employer will tell you how to provide that documentation.