Flex Spending Account (FSA) Secrets: What Your Employer Doesn’t Want You To Know
If you are one of the nearly 35 million people in the US with employer sponsored healthcare, currently using a Flexible Spending Account (FSA), I have potentially life changing news for you.
Ok, maybe it isn’t that dramatic but this information could definitely help you navigate some difficult choices towards the end of the calendar year.
Wallet Sized Healthcare
FSA’s allow you to direct pre-tax dollars from your paycheck to the account. When you sign-up for an FSA with your employer health plan, you’re issued a card that links to your account, similar to a debit card. These FSA cards are the VISA or MasterCards that you can then use for all qualified medical expenses. We are talking doctor’s offices, clinics, pharmacies, medical bills…all of that good stuff. It’s very possible you have one in your wallet or purse right now.
FSA card accounts are also frequently used to satisfy your deductibles with your health plan, pay for any co-payments, and also any coinsurance, usually for those places we mentioned earlier. You break out that card and magically your visit is paid for.
The best part of these accounts is that you are able to set aside money pre-tax from your employer paycheck. That may not seem like much but just as a brief way to illustrate that concept, look at your paycheck and compare the Gross Earnings with your Net Pay. Maybe you gasped? I usually do.
With an FSA though, you contribute funds to the account from your gross earnings as opposed to your net pay, saving you on a quadfecta of taxes, including federal and state income taxes, social security and medicare taxes. Now we’re talking serious money.
Two Ways FSA Accounts Frustrate Us
With the good also does come some inconveniences, as these accounts arrive with a few quirks that do cause people some uncertainty and frustration. I’ll walk you through some of the more frustrating parts of these accounts and what you can do to make sure you use all of the money that you set aside.
1) An Unpredictable Future
FSA accounts have a maximum account contribution of $2,700 per year (as of 2019). If you do not select the max, you have to guess how much you think you’ll need for medical expenses for the year before it begins. Hopefully you are a good guesser and you have extra leftover at the end of the year but not too much left over as we will see shortly.
2) You can lose money!
What is this you say? If you have $500 or under left in the account on December 31st at the end of the year, congratulations! That amount will usually roll over to your next year’s plan account (best case scenario).
But, and here’s a big but, if you have over $500 left in that account, EVERYTHING OVER $500 WILL BE SENT BACK TO YOUR EMPLOYER. This means that money ceases to be yours, the same money that you earned from your hard work over the year.
Have $1,500 left at the end of the year in your FSA? You just gave your employer $1,000 for free. What the ????
You’ve Got to Do You
You know your situation best. Hopefully you are a really healthy person but even healthy people have medical situations pop up that require significant dollars from time to time.
I personally am a fan of maxing that FSA account out if you have the financial wherewithal to do so, regardless of how much you normally might spend on medical expenses annually. Throw in as much as you think you can that makes sense for your own health situation, because there are really only two scenarios that will play out for you most likely.
1) You use all of your FSA money and have to spend out of pocket
If you run out of FSA dollars, you usually have to go out of pocket, meaning money from your regular bank account to pay for medical expenses unless you have additional funding in an HRA or HSA. This isn’t necessarily bad though. It means that you maximized the money that you put into that account and hopefully you didn’t have to spend too much of your own money. If you didn’t go out of pocket much, great job and keep doing it!
2) The second scenario is that you have money leftover before year end
If it is under $500, you are usually good and that will roll over to your new plan, but what should you do if you have over $500 left before the end of the year?
In my own experience with FSA’s, there have been a few times that once November and December arrived, I quickly realized there was too much money left in my FSA account and I needed to go on an FSA shopping spree. In some cases, this amounted to roughly $1,500 to even $2,000! For me personally, there was no way I was about to give that money back to my employer.
Magic Elixir
Did you know over $400 million is forfeited from FSA accounts back to employers each year?
You work hard for your money and you should keep it. Maybe you love your employer and that is ok too but I don’t think I would love my employer enough to just give them $2,000 for free. Be selfish America, use these dollars.
Okay, we don’t want to lose our money so what can we spend it on if we have extra left over?
First, there are websites that list what is FSA eligible and what is not. (See: https://www.wageworks.com/employees/support-center/healthcare-fsa-eligible-expenses-table/)
But let’s be honest, are you going to go to a store and pull up this website before you purchase items, verifying that it’s FSA eligible? Even if you are patient enough to do this, there is no guarantee that your purchase will be approved.
Personally, I’ve had FSA accounts for over 10 years and I’ve stuck to using them only for doctors, medical bills, and pharmacy purchases because I was afraid of rocking the boat, having the hassle of getting denied, and I just did not know what else I could spend it on.
It took me time to get past that fear but there are actually hundreds and thousands of things that you can use your card on with absolutely no problem whatsoever and here is the best part – you can buy them online from the comforts of your home!
After gaining a bit of education after what qualifies, more recent, I have used my leftover FSA money on new eyeglasses or even prescription sunglasses. Both of these are great uses for extra money and are qualified purchases.
The real game changer though came when I found out about the websites like www.fsastore.com. Where had this been all of my life? Because if you don’t know about this site (or similar sites like www.fsamarket.com), you are missing the hack of all hacks for FSA account holders.
This site takes all of the guesswork out of using the card and has thousands of items ready to be shipped to you that you never thought would be covered by your card. They have everything from basic items such as band-aids and sunscreen all that way up to defibrillators, wheelchairs, massaging units, baby monitors and everything in between.
If you have extra money to burn before the end of the year, this is a great way to spend it.
What I enjoyed most is that they have the whole site broken into two categories, FSA Eligible – No Prescription Needed and FSA Eligible – Prescription Needed. And there are bundles of items listed as well. Don’t want to think about it too much? Just add a themed bundle.
The “eye” bundle has, you guessed it, everything you could possible want for eye care. The “skin” bundle has every type of skincare and sunscreen you could possibly need. You can really get some functional and cool items with your extra dollars rather than just handing it back to your employer.
You may be saying that is great but I don’t really need or want all of that stuff but I’m still interested in using the money.
Well maybe you caught a recent Wall St. Journal article talking about FSA gifting ideas: https://www.wsj.com/articles/oh-you-didnt-want-a-defibrillator-the-risks-of-buying-christmas-gifts-with-leftover-fsa-cash-11545589783
People are actually using their FSA cards on fsastore.com and other sites to buy Christmas gifts! Shop Prime at the holidays? Even Amazon has it’s own FSA store!
To some people, a remote-control foot massager would be a great gift or maybe a couple you know needs a baby monitor or perhaps your dad has a bad back and has been asking for a back massager.
Disclaimer time: One legal caveat is that those FSA dollars are supposed to be for you and/or your spouse so you may want to take this into consideration. However, let’s just say this is loosely enforced (source – Wall Street Journal). You may not want to order 13 baby monitors just for propriety’s sake, but I certainly will not tell you what or what not to do here.
I, probably like you, could have used this website FSA hack 10 years ago. But there is only so much information you can get from your company’s HR department and this and other websites were certainly never a part of it.
With my FSA money, I like to play it safe, so I’ve always tended to max out my FSA contributions each year just in case I needed them. Fortunately for me, many of those years I’ve not needed much money at all from that account, which is probably the reason why I have so many pairs of eyeglasses and sunglasses!
Luckily, you don’t have to be an eyeglass collector like I was for years – you can spend your extra money on the cool stuff (like this high-tech cordless steam inhaler).
For me, I’m just glad some brainiac made this process easier for the people like me who don’t want to waste their time reading up on the thousands of medical products available in the world that are FSA eligible!