Health savings accounts, or flexible spending accounts, are a smart way to maximize your health dollars and save on taxes-a double bonus in these uncertain economic times. Typically, these accounts allow you to choose a certain dollar amount each year, which is deducted from your paycheck before taxes. This therefore lowers your taxable amount on your paycheck. Many people waste this wonderful benefit by not using it. Why would you turn down free money? Any money you can use and not have to pay income tax on is like getting an automatic 28% return on your money. You won’t find a return like that on any savings account or CD!
One important caveat: any amount not used during the calendar year will not roll over to the next year. It’s a “use it or lose it” plan, so you want to accurately estimate your yearly medical expenses. Some plans will also let you include childcare expense for dependent children or adults, such as an elderly parent with Alzheimer’s. Most plans limit the total maximum yearly amount that may be allowed; a typical limit would be $5,000 per year. In addition to child care/elder care costs, you may be reimbursed for the following:
- Copays for doctor visits, hospital stays, or procedures
- Certain non-prescription medicines, such as aspirin and cough syrup
- Contact lenses and solution
- Eye glasses and exams
- Physical therapy
- Dental expenses
This is obviously a very important benefit, and if you are fortunate to work for a company that provides it, you should take advantage of it. Some plans allow you to declare as little as $250 per year. Even if you are the picture of health, you should have a minimum of one physical wellness exam per year. A few prescription medications here and there quickly add up. Some plans even cover vitamins.
Your plan will have the dollar amount deducted from each paycheck and held for you. As you accumulate receipts, you submit them for reimbursement. Usually you will receive your reimbursement within two to three weeks, typically as a direct deposit or addition onto your paycheck. CVS is a great store to shop for FSA (flexible spending account) items, as their receipts clearly designate FSA-eligible purchases.
Your company will provide you with the form to fill out and submit. Simply fill it out, and send copies of all receipts with the form. It’s fast, easy, and it helps stretch your budget. Track how much you spend each year, as it may vary from one year to the next. If you realize that you deducted more than you will use, that’s the time to load up the kids for eye exams, extra glasses, or prescriptions that you can purchase ahead of time. As the year comes to a close, be sure to track any extra dollars so you can use them. December 31 is the absolute cut-off, so don’t wait until January to see your doctor if you can go in December.