Healthcare and everyday family expenses can add up quickly. From doctor visits and prescription medications to dental care and childcare, employees are often looking for ways to make their hard-earned dollars go further. A Flexible Spending Account (FSA) can be a valuable benefit that helps employees save money on eligible expenses while making healthcare costs more manageable.

What Is an FSA?

A Flexible Spending Account is an employer-sponsored benefit that allows employees to set aside pre-tax dollars from their paychecks to pay for eligible healthcare and dependent care expenses.

Because contributions are made before federal income and, in many cases, Social Security and Medicare taxes are deducted, employees can reduce their taxable income and potentially keep more of their paycheck.

Save Money on Eligible Healthcare Expenses

One of the biggest advantages of an FSA is the ability to use pre-tax dollars for qualified medical expenses. Depending on the type of FSA offered, eligible expenses may include:

• Copayments and deductibles
• Prescription medications
• Dental expenses
• Vision care and prescription eyewear
• Certain over-the-counter medications
• Eligible medical supplies and equipment

Using pre-tax dollars means employees may pay less out of pocket for expenses they would have had to pay for anyway.

Increase Employee Take-Home Pay

When employees contribute to an FSA, those contributions are deducted from their paycheck before certain taxes are calculated. This can lower their taxable income.

For example, an employee who expects to spend money on eligible healthcare expenses throughout the year can plan ahead and contribute to an FSA. Instead of paying those expenses entirely with after-tax dollars, they may use pre-tax funds, potentially increasing the value of every dollar they contribute.

Plan Ahead for Predictable Expenses

Many healthcare expenses are predictable. Employees may know they will have regular prescriptions, dental appointments, vision expenses, or other eligible costs during the year.

An FSA allows employees to plan for these expenses in advance. By estimating eligible expenses and choosing a contribution amount during enrollment, employees can set aside money specifically for qualified costs.

Dependent Care FSAs Can Help Working Families

Employers may also offer a Dependent Care FSA (DCA), which can help employees pay for eligible dependent care expenses using pre-tax dollars.

Eligible expenses may include certain costs related to the care of qualifying dependents, such as:

• Daycare
• Preschool
• Before- and after-school care
• Summer day camps
• Other eligible dependent care services

For working parents and caregivers, the ability to use pre-tax dollars toward eligible dependent care expenses can provide meaningful savings throughout the year.

FSAs Put Employees in Control

An FSA gives employees more control over how they budget for eligible expenses. Rather than paying for qualified expenses entirely with after-tax income, employees can take advantage of the tax benefits available through their employer-sponsored FSA.

With the right planning, an FSA can help employees make their healthcare and dependent care dollars go further.

Understanding Your FSA Is Important

Every FSA plan has specific rules regarding eligible expenses, contribution limits, deadlines, carryover provisions, and grace periods. Employees should review their plan documents and understand the requirements of their specific employer-sponsored plan.

At Benefit Management Administrators, Inc., we help employers and employees navigate benefit administration with tools and support designed to make benefits easier to understand and use. Contact us for a free consultation if you want help implementing an FSA plan for your health plan members; existing plan members can also call for a live customer service agent in San Antonio, TX to assist them in using their FSA plan.