The FSA is a type of account that is offered by many employers as a supplement to health insurance coverage. The term FSA stands for flexible spending account. Here are the basics of the FSA and how it works.
Flexible Spending Accounts
The flexible spending account is a type of account that allows employees to contribute tax-free money to it for certain expenses. You can use the money in the account to pay for many different qualified medical expenses. For example, you might choose to use the money in the account to pay for your deductible or co-pays when you visit the doctor. You can also use the money to pay for prescription or over-the-counter drugs. Many people even use this type of account to pay for daycare expenses for their children.
Use it or Lose it
One of the big problems with this type of account is that you have to use the funds every year or you lose them. At the end of the calendar year, the account resets and you have to start saving all over again. This makes it difficult for many employees to justify contributing money to the account because they are taking the risk of losing money.
How long should I keep flexible spending account records?
When you participate in a flexible spending account, you should try to keep all of your records as you accumulate them. Most experts recommend keeping your flexible spending account records for at least three years after you receive them. You may be tempted to get rid of these records as soon as you are reimbursed for the expense. However, you should keep them for the three years because the company that you work for could be audited at some point during that time span. If this happens, you could be reissued a new W-2 that shows you received additional income.
Can a flexible spending account pay for Medicare payments?
Money from your flexible spending account is not eligible to pay for Medicare payments. The money for Medicare expenses has to be paid out of your own pocket. However, most other medical expenses that you incur that are not paid by Medicare could be paid for with the funds from your FSA. For example, if you have a copay or a deductible that was not covered, you could use the money to pay for these expenses. You may also be able to use the funds to help pay for prescriptions that are not covered by Medicare.
Can I use my flexible spending account on my spouse?
You can use the money that is in your flexible spending account for medical expenses related to your spouse. When you have a flexible spending account, you can use the money to pay for any of your medical costs as well as the medical expenses of dependents or your spouse. If you have a dependent care flexible spending account and your spouse is disabled, you can also use the money to make sure that your spouse has someone to take care of him or her throughout the day. Make sure that the expense you are claiming is qualified before spending the money.