Let’s start with, “What is an FSA?”
Otherwise known as a Flexible Spending Account, or a flexible spending arrangement, employers set these accounts up for their employees. Essentially, money goes straight from your paycheck, before taxes, into the FSA account. Your employer may add some money to the pot as well. Then, you can use those funds for qualified expenses, namely childcare and health care.
According to the U.S. Bureau of Labor Statistics, the average American household spent around $5,177 on health care in 2020. And while childcare costs vary wildly, the annual Care.com Cost of Care Survey reports 85% of parents in 2021 spent 10% or more of their household income on it.
Consider how much these areas cost you annually. An FSA can help you reduce their bite, making your life run smoother. And here’s how you can spend it.
WHEN DO I NEED TO SPEND MY FSA BY?
Unlike other employee benefits programs, money in an FSA doesn’t really carry over. If you don’t spend it, you forfeit it. So, technically, you have to spend everything in your account within the plan year. At least that’s what it sounds like, but it’s not completely cut and dry. Your employer may offer you two other options.
First, you can opt for a “grace period,” giving you an extra two and a half months to use your money. That gives you a deadline of March 15th. Or you can choose to carry over a maximum of $550 (for 2021) annually into the following year.
Your employer is only allowed to offer one to you, not both. However, they’re not required to offer any at all if they so choose.
For the 2021 calendar year, employees have a contribution limit of $2,750 to their HCFSA – the same as 2020. In contrast, thanks to the American Rescue Plan, DCFSAs allow increased contributions for any plan after December 31st, 2020, and before January 1st, 2022. The new, temporary limit is $10,500 for joint filers and $5,250 for single filers. That’s up from $5,000 and $2,500, respectively.
WHAT CAN I SPEND MY FSA ON?
It depends on the type of FSA you have. When you have a Health Care FSA (HCFSA), you use it for out-of-pocket medical, dental, and vision care costs. Some of the qualified expenses include copayments, deductibles, prescription drugs, and professional services, such as physical therapy.
Alternatively, there are Dependent Care FSAs (DCFSA), which employees typically use to care for children age 13 and under. So, you might use that money for preschool, daycare, or an after-school program.
You can also use a DCFSA for a qualifying adult, but they must meet IRS guidelines.
WHAT ARE SOME WAYS I CAN SPEND MY FSA FUNDS IF I HAVE A LOT OF MONEY LEFT?
You don’t just want to lose out on all that money. There are plenty of ways you can use up your leftover funds before the year runs out. Here are some ideas to get you started and ways AAA can support you:
- Sight for Sore Eyes: You can treat yourself to some swanky new shades, contacts, or reading glasses with your FSA money. Knock off even more from the cost using AAA’s membership discount at LensCrafters.
- Treat your Feet: You can support your feet with FSA funds by purchasing gel inserts, arch braces, callus trimmers, and more. Or maybe you just need a new pair of kicks, like from Reebok.
- Save your Skin: Skin protection like sunscreen also qualifies, even moisturizers with SPF protection. Remember that the next time you need to travel or work in the sun. But that’s just the beginning. You can also use it for family planning products, over-the-counter medication, baby products, sleep aids, or even alternative medicine. If you ever want to check if your purchase qualifies, check with the DCFSA and HCFSA eligibility lists.