Flexible Spending Account (FSA) allows employees to be reimbursed for medical expenses. FSAs are usually funded through voluntary salary reduction agreements with your employer. The benefits of an FSA are that no employment or federal income taxes are deducted from your contribution. Some employers will even contribute to your FSA account.
Withdrawals may be tax free if you use the funds for qualified medical expenses. You can withdraw funds from the account to pay for qualified medical expenses even if the funds are not yet in the account.
Your insurance company can provide you with a list of qualified medical expenses. In general, non-prescription medicines (other than insulin) are not considered qualified medical expenses for FSA purposes. However, it covers most medical, dental, vision and pharmacy expenses.
Medical FSA contributions are limited to $2,500 per year. In general, the contributions must be withdrawn for qualified medical expenses by the end of your plan year. At year-end, a business can offer a 10-week grace period to use unspent FSA money or provide an option of rolling over up to $500 of unused amounts in the account to the next year. The FSA plan cannot offer both and the option must be designated in the plan documents.
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