Don't Mess With Taxes

Prescription co-pays are just one medical expense that can be paid with money in a healthcare flexible spending arrangement, or FSA.

If you watch cable television (or like me, too much cable TV), you know that it’s Medicare open season for older Americans. Many younger people also are making medical selections for the coming year from the cafeteria of benefits offered by their companies.

The biggest employer-provided benefit is health care. In addition to medical insurance coverage, lots of businesses also offer their workers the option of opening a healthcare medical flexible spending arrangement (or account), popularly known as an FSA.

An FSA is a great and tax-saving way to pay for health costs that aren't covered by your insurance. The money goes into the FSA pre-tax via automatic contributions from each paycheck. Then the cash can be used to pay for or reimburse FSA eligible costs throughout the year.

Let me emphasize the pre-tax component. The amount you make and shift to your FSA isn’t subject to federal income tax, or Social Security and Medicare taxes. Those tax savings could help offset any loss of pay that you send to the FSA.

But even if you do end up with a bit less take-home pay, the FSA means you don’t have to worry about coming up with cash to cover your out-of-pocket medical expenses.

FSA contribution limits: You get to decide how much to put in the account, up to the annual FSA contribution limit. That amount is indexed for inflation.

In 2025, you can put up to $3,300 in your FSA. That's a $100 increase from 2024's $3,200 contribution limit. The potential rollover amount also is indexed for inflation, meaning that in 2025 the maximum carryover is $660, up from $640 this year.

But you might not want to max out your FSA because the plans have one drawback. In some cases, if you don’t use all the medical money you’ve stashed by the end of your benefits year, you lose it.

Some employers provide a bit of relief from the basic FSA use-it-or-lose-it rule. They let workers roll over part of their FSA funds into the next benefits year. Others offer workers a grace period to use the money, until March 15.

So, before you decide how much of each paycheck will go into your FSA, run the numbers. Look at what your medical expenses, and your family’s, too, if they’re covered by your workplace plan, were in recent years.

Also consider any special medical procedures you might have planned, for example, your children’s orthodontia.

More medical expenses to consider: The list of medical needs and their costs is lengthy. So is the one kept by Internal Revenue Service detailing how FSA funds can be used.

Generally, you can use FSA funds for qualified medical expenses not covered by your health plan. These can include co-pays, coverage deductibles, and a variety of medical products. Also covered are services ranging from dental (hence the youngsters’ braces) and vision care (including prescription eyeglasses) and hearing aids.

In addition to making your personal medical expenses, from ongoing costs for treatments and medications to potential big-ticket costs, you need to talk with your workplace benefits coordinator. That office can provide you with information on expenses covered under your workplace FSA, as well as how to claim the funds.

This can include your medical coverage’s co-pays, deductibles, and a variety of medical products. Also covered are services ranging from dental and vision care to eyeglasses and hearing aids.

And don’t forget about medical costs that are so routine you tend to overlook them. This is such things as —

• Updating medicine cabinet with necessary supplies.
• Seasonal needs such as allergy products, sunscreen, or warm steam vaporizers.
• Routine checkups or visits with specialists that regular insurance plans do not cover.
• Many over-the-counter items that are FSA eligible.

A benefit, not a requirement: OK, you’re jazzed about FSA possibilities. But make sure your company offers this benefit.

Employers are not required to offer FSAs. And those that do, aren’t required to provide the rollover option.

If your employer isn’t offering the FSA option this year, talk with your coworkers who also might be interested in the benefit. Y’all might be able to get an FSA added to the array of choices offered by your employer next benefits enrollment season.

You also might find these items of interest:

• 10 unusual but allowable FSA expenditures
• Items to add to your year-end medical FSA shopping list
• Inflation adjustments to medical tax breaks could help you feel better

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