Flexible Spending Account

[Fireup2020]

It is open season for registering for a FSA. Does anyone else use this? I have read (and re-read) the brochures we were sent, and this is my take on it:

I have X dollars set aside per year (pulled out of my salary in pay day increments, up to the set limits depending on dependency status)

I get an EZ Reimburse card with Mastercard logo that I use for my co-pays (physician, labs, prescriptions) and purchasing approved OTC items (cold meds, analgesics, band aids, neosporin, etc)

All these purchases are tax exempt (federal) and the $$$ is pulled out pre-tax.

As a single person, I am considering starting off with $200 for this enrollment year to test the water.
I am missing the "negatives" other than the state tax issue. (NJ)

 

[jumpstart]

Hi Fireup!

From my point of view, the negatives are the hassle involved with the FSA. First, you have to set up, maintain, and fund the account somehow. Next, you have to keep up with whatever's involved with tracking expenditures for medical expenses and that they were paid by the FSA. Then come tax time, you have whatever additional hassle is associated with that (if anything). The worst part seems to be the fear that you won't spend the entirity of the account and thus you lose all monies not spent OR in an effort to spend all of the account, you end up paying for services you wouldn't otherwise even bother with if you didn't have the obligation to spend all the money.

I'm all for saving money, but my pulse feeling is that for relatively healthy individuals, the hassle > financial gain.

 

[Fireup2020]

I called the the administrator of the plan asking the specific question about tax forms - and was informed that there is no additional schedule, etc for tax time. (but this board has seen most everything, so I am asking here )

FWIW, I am close to the cusp for moving up to a higher tax bracket, so I try to maximize my pre-tax withholdings (deferred comp, TSP) so I can continue life in the "cheap seats"

 

[jumpstart]

I admit, i'm always considering the FSA for me too since I have it available at my place of business, but I just haven't been convined its worth diving into yet, for me anyway. The extent of my medical expenses is the occasional co-pay for a doctor or dental visit, which is usually 20 dollars a pop, or the occasion perscription drug with a ~ 10 dollar co-pay. So I just cant get fired up about filling out forms and keeping up with an extra account to save on taxes on a few hundred dollars much less dealing with the anxiety that I might not spend it all!

Its reminiscent of coupon clipping for me. I cant cut out coupons fast enough to save enough money to even eclipse what i'm paid at work per hour, so I just cant justify the effort. If I need/want more money, i'd just work more.

 

[maddythebeagle]

No there isnt any additional tax froms....it just comes out of payroll....and is also exempt from SS taxes....I used to do 300 at the min....doing a bit more since I have a dependent with more health care needs now....Also a lot of these plans are allowing 3 months additional into the next year to use up the money so somehting to look at...

 

[PBAT]

I enrolled last year, because we knew DH would have almost $1k in copays for physical therapy. So we enrolled for $1500, enough for the therapy, regular prescription copays, dental in excess of coverage, and new glasses.

However, we will not enroll for 2008 because the larger expenses won't be there.

A coworker was planning to get braces, which cost about twice our annual FSA limit. The orthodontist agreed to take half payment Dec 31 and half payment Jan 1 so he could get the full tax benefit.

If married, you can use your FSA money for spouse's uncovered medical expenses even if they are not on your health insurance. Although I am not sure how they monitor - what if both spouses had FSA plans, and used the same receipts on each plan to double dip? Again, that would be a lot of work to scam a little bit of tax savings, but some people are like that.

 

[Gworker]

I don't think $200 would save you much money in taxes. I'm thinking of setting one up but my wife is diabetic so we spend quite a bit of money on medical. I just went to a pre-retirement seminar and most people in the seminar were using an FSA.
If you are a federal employee its supposed to be a really good plan that is easy to use. You say how much you want to set aside a paycheck for the year. If in the second month you need the whole amount for a large medical bill you can get the whole amount you planned to use, so it's like an interest and tax free loan. So if you were thinking of LASIK or something like that it would be great.

 

[travelover]

I called the the administrator of the plan asking the specific question about tax forms - and was informed that there is no additional schedule, etc for tax time. (but this board has seen most everything, so I am asking here )

There may be some confusion between a FSA - flexible spending account and an HSA - health savings account. The FSA is a use it or lose it deal. The HSA carries to the next year, but requires the additional tax filing hassle. It is available with a high deductible health plan.

I have used both in the past and currently have an HSA. When I has the FSA I usually funded it with $300 and if I had a surplus near the end of the year, I'd stock up on contact lenses or OTC medications that I knew I would use, so I did not lose it.

 

[Robert the Red]

We used one this year -- $1000. We've already spent the money, mostly on dental work, since our employer's dental coverage is minimal. As a fallback, if we hadn't exhausted the fund, I planned to buy another pair of glasses as a backup.

Some employers also offer dependent (child and elder) care FSAs, which if you need them can be very useful since the expenditures are pretty predictable.

 

[Coach]

I started using a FSA last year after resisting for a couple of years, and I've been happy with it. I only fund predictable amounts so there's no danger of leaving money unspent at the end of the year. I do $480 a year via payroll withholding (including $300 for contacts each year) and I'm single.

The special credit card feature really simplifies things compared to submitting receipts.

This year I finished off the FSA money last month -- an interesting feature is that I can spend the money before it's withheld.

Coach

 

[Sue J]

an interesting feature is that I can spend the money before it's withheld.

Coach

Yes, that's very nice for large expenses early in the year like dental work or orthodontia.

Our FSA now has the VISA card, too. So much easier than sending in receipts. And this last year they changed the requirement to use up all the money by Dec. 31st. We can now have expenses through March 31st, 2008 for money deducted in 2007. I don't know if that's all FSA's or just ours.

The trick to doing these is to estimate close without overestimating. In our family, who needs glasses this year? Who has dental work coming up that can wait until early next year? Who has ongoing prescriptions and Drs. appointments with a $10 co-pay.

I usually do a best guess estimate and then round DOWN to decide on the bi-weekly deduction.

Don't forget to use the VISA card for ordering mail order prescriptions online.

 

[Goonie]

I signed up for the FSA while I was still employed. I put in $500 per year. All I had to do to collect my FSA money, was to send in receipts for paid doc & dentist bills, eye glasses, OTC meds, and prescriptions, along with a request form to the FSA administrator. About a week later I would receive my check.

And like Travelover stated, the FSA IS a "use it or lose it" affair. Our plan administrator did offer the optional (for them) extension, that increased the yearly coverage until March 15th of the following year. (i.e.: If you paid into a FSA for this year, 2007, you could use that money to reimburse expenses that you incur up through and including March 15, 2008. And you would have until the end of May '08 to file for reimbursement.)

I was in the 28% tax bracket at the time, so of the $500 that I put in the FSA, $140 of that would have been paid in federal tax without the FSA. That was kind of like free money! Last year my 'out of pocket' expenses totaled $512. I had $500 in my FSA, so I only had to fork over $12 extra. Without the FSA I would have had to earn $655.36, to pay the $512 in after tax dollars. So it was a nice $140 tax break.......I'll take it wherever I can get it!!!

 

[honobob]

I used a FSA for 8 years for my Dads daycare. I was able to use the max of almost $5,000 per year. When he passed midyear I was told I could not stop payroll deductions and would lose $2,500. Even when I pointed out that his death was a qualifying event I was told "no way"! After a few phone calls it was straightened out. I have friends that are able to send their children to certain "camps" with the money.
Seems there is a lot of leeway in spending the money but alot of confusion in the administration.

 

[Nords]

FWIW, I am close to the cusp for moving up to a higher tax bracket, so I try to maximize my pre-tax withholdings (deferred comp, TSP) so I can continue life in the "cheap seats"

At the risk of preaching to the converted who already know this, the FSA sounds like a good idea if the hassle factor doesn't rise-- but if you step up from one tax bracket to the next you're only charged the higher tax rate on the dollars that are actually in that tax bracket.

Tax on $77,100 income when filing single: $15,698.75.
Tax on $77,101 income when filing single: $15698.75 + 28 cents. You keep 72 cents.

Even if you start losing deductions & exemptions, being in a higher tax bracket isn't always bad... IMO the "bad" part is the working burden that comes with the higher income.

 

[bssc]

I have used one for 15 years. I put $1400 in it and have used it all already for
Dental work (new crown)
Drug copays
OTC medicine
Doctor Copays
Two pairs of glasses

There is a simple form you fax to the place and the money gets direct deposited into my account. I am going to spend the money anyway so why not have the feds help out.

Next year, Megacorp goes to the HD plan what I don't use will be rolled over.

 

[Darryl]

Have used for years, I occasionally regret it when I'm dealing with administrators, the hassle factor that has been mentioned. Somedays it feels like a job but I think if I take my total tax savings over the years divided by hours spent dealing with them it would be higher than my hourly rate.

I did $2000 this year (kids braces) will do somewhere between 500-1000 next year as already mentioned do your best guess and round down as it is use it or lose it.

 

[Bimmerbill]

I use one. I had braces, which ran $215 a month so I was pretty sure how much to have taken out per paycheck.

It's a little harder now that I paid off the braces. I used all my money already this year, due to some other dental work, co pays, medicine, etc.

 

[chinaco]

We use it. It is a bit of a hassle... but it saves money.

I suppose it depends on the amount of medical expenses in a year to determine if it is worthwhile.


This is one of those areas that should just be overhauled. This option should be available to all, not just people who have employers that offer it.

Congress should lower the threshold for deductions against medical expenses.

 

[Texas Proud]

I was one of those people who used to be 'why the hassle'.... but it is NOT that much hassle...

Do you send in rebate forms to get a dollar or 5 dollars? If so, then it is no more hassle than that...

The extension to the next year is a federal law... I would bet there is not one plan that does not offer it...

Remember that you can buy OTC drugs with it... one year (back when it was still Dec 31, I went and bought a bunch of allergy medicine to empty it out)..

You can buy glasses, contacts etc...

All I do is fax a copy of my bill, I do not fill out any form. And our plan now has agreements with a few drug stores where they only charge you what is eligible at the register so you do NOT have to send anything in... you pay the rest on your regular CC...

SO, they have made it SO easy I don't see why you would NOT want to save a bit of money..

 

[HFWR]

I've used our FSA since inception. Probably hasn't saved much, but it's free money, IMV...

 

[jazz4cash]

Family of 5 and it's been a strategic piece of my budget stretching routine for many many years. Currently putting in 5K mostly for the predictable stuff....contacts, dental (braces), etc. I seem to recall these deductions bypass Soc Sec taxation as well, so I look at it like a 40% discount on my medical expense. Yes its a hassle, but it saves a lot of money if you can put several thousand in. It is a hassle (we don't have the debit card feature). The users here have covered most of the bases such as planning ahead, using the 15 month expenditure period, stretcing expenses over two periods, etc. Another improvement in the past year or so was inclusion of many over the counter meds.

 

[Darryl]

Had to call Wells Fargo AGAIN tonight I sent them a claim for $3,600 for braces from my flex acct. and they took all the money from the Health Savings acct. that leaves over $1,200 in the flex acct to use by Dec 31st. Same problem in June when I sent a flex claim at least this time they apologized and said they would get it from the right account. Unlike June when they tried to explain why it wasn't an eligible claim (eventually after repeated calls they fixed it). I will put over $5,000 in the HSA again next year but I'm starting to wonder about the hassle of getting my FSA money disbursed when I submit claims.

 

[jnojr]

I love my FSA. I need new contacts each year. I'm having a lot of dental work done right now. I'm considering getting snipped next year. I might want corrective eye surgery at some point. I use the card to pay for aspirin, contact lens solution... anything health-related.

You just need to plan carefully for how much you intend to spend.

 

[Salaryman]

Some employers also offer dependent (child and elder) care FSAs, which if you need them can be very useful since the expenditures are pretty predictable.

DW and I use our respective dependent care FSA offered through each of our MegaCorps for our kids' daycare and nanny expenses.
10k (5k max per person) annually pretax, works out to a tax savings of about 4k for a expense that we'd have to cover no matter what.
When the time comes, elder FSA and medical FSA will be a certainty for us.

Beyond the minimal paperwork issues, IMHO this is one of the few 'gimmies' that the federal government offers to the masses.

 

[Jay_Gatsby]

My work benefits are so outstanding that I'm having a hard time spending the $500 I put in my FSA this year. In all likelihood, I'll have to stock up on all sorts of OTC medications, although I'm pretty healthy and rarely need to use much of them.

Anyone know of a reason why we should be able to simply roll over FSA money year after year? Yes, it's money the Government hasn't taxed, but since it's primarily restricted to healthcare-related expenses, wouldn't it be a great way to offset more of the healthcare bill our country has to foot every year?