Flexible Spending Account

 

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A Flexible Spending Account (FSA) is one of a number of tax-advantaged financial accounts that can be setup through an employer’s health plan.  An FSA allows an employee to put aside a part of their earnings to pay for qualified expenses.  Typically medically related expenses (health, dental, vision) in addition to dependent care (child day care) are reimbursable.  Money deducted from an employee’s pay into an FSA is not subject to payroll taxes, resulting in an overall tax savings.  One disadvantage of FSA’s prior to the Affordable Care Act is that funds not used by year’s end are lost to the employee (typically referred to as the ‘use it or lose it’ rule). Now an employee can carryover up to $500 into the next year without losing the funds.  Consumers are issued an FSA debit card, also known as a Flexcard to access the account funds. The IRS limits the reimbursable amount to $2,500 for the first plan year for medical expenses. For dependent care your total reimbursements cannot exceed $5,000 per year if single or married and filing a joint tax return; $2,500 per year if married and filing separate returns.

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