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Information about all aspects of finances affected by a serious health condition. Includes income sources such as work, investments, and private and government disability programs, and expenses such as medical bills, and how to deal with financial problems.
Information about all aspects of health care from choosing a doctor and treatment, staying safe in a hospital, to end of life care. Includes how to obtain, choose and maximize health insurance policies.
Answers to your practical questions such as how to travel safely despite your health condition, how to avoid getting infected by a pet, and what to say or not say to an insurance company.


Flexible Spending Accounts (FSA) are employer-established benefit plans which are generally funded with pre-tax contributions by employers. Employees may also contribute to an FSA.  Self employed people are not eligible to participate in an FSA.

Contributions made by an employer can be excluded from your gross income for tax purposes. No employment or federal income taxes are deducted from the contributions. Maximum annual contributions in 2020 are limited to $2,750.  

Self employed people are not eligible to participate in an FSA.

Expenses which can be paid for from a Flexible Spending Account from an IRS perspective are broad. Which expenses are allowed in a particular plan depend on the terms in that plan. 

There are two types of Flexible Spending Accounts. 

  • Health Care FSA: Money in a Health Care FSA is used to reimburse the employee for specified medical expenses as they are incurred. The list of eligible expenses is fairly broad, and includes deductibles and co-pays. To learn more, see: Health Care FSA
  • Dependent Care FSA: Money in a Dependent Care FSA is used for the care of eligible dependents while the employee is at work. To learn more, see: Dependent Care FSA

Participation in one type of FSA does not affect participation in another type of FSA. However, funds cannot be transferred from one FSA to another.

An employee can withdraw funds from an FSA to pay qualified expenses even if the employee has not yet placed the funds in the account.

Historically, the main disadvantage of a FSA is the "use it or lose it" rule.- if the money isn't spent within the required period of time, you lose it. However, employers are now allowed to permit workers to carry over FSA balances up to $500 into the next year..Alternatively employers have the authority to ease the rules by granting a two and a half month grace period. If there is a grace period, any qualified medical expenses incurred in that period can be paid from any amounts  left in the account at the end of the previous year. For example, if the grace period extends to February 28, then February 28 is the deadline for expenses, not December 31.

The rules relate about expenses relate to when the expense is incurred, not when the purchased items are used. For instance, if the grace period extends to February 28, expenses incurred February 21 but not paid for until March can be paid from the FSA as if they were paid for in the previous year.)

The most common method of avoiding the "use it or lose it" rule is to use any money left in the account at year end to stock-up on what you normally use for yourself and your family. 

If you are terminated from work, funds in FSA account are subject to COBRA.

For additional information, see:

NOTE: You can have both a FSA and a Health Savings Account (HSA). If you have both accounts, you can only pay for a qualified expense once. You cannot double dip the benefits.

How An FSA Works

Employees estimate their family's annual health or dependent expenses and enroll each year, electing the amount to be withheld for the coming plan year. Annual enrollment is required even if you would like to maintain the same level of coverage from one year to the next.

Employees contribute pretax funds to the account through a salary reduction agreement.

The funds are not subject to income tax or Social Security tax.

Under the agreement, the amount an employee chooses is deducted evenly from his or her paycheck throughout the year. Once the amount of contribution has been designated during the open enrollment period that occurs once each year, you are not allowed to change the amount or drop out of the plan during the year unless you experience a change of family status described in the plan.

NOTE: FSA's are "pre-funded." The total yearly amount in the account is available to the employee at the beginning of the year - even though the employee has not actually contributed this amount to the plan. If you set aside $2,000 per year in a FSA the entire $2,000 is available for your use immediately - either at the start of the plan year (commonly January 1) or after the first contribution to the FSA is received by the FSA vendor, depending on the plan. This is so even though you only contribute to the FSA in small increments throughout the year such as 1/26th of the annual amount if you are paid biweekly.

If you leave employment before making all contributions to the FSA, employers are left holding the bag for amounts which have been paid, but not contributed.

The annual contribution amount must remain the same during the entire year unless certain events occur, such as the birth of a child or the death of a spouse.

Employers may also contribute to these accounts.

To receive funds from your FSA:

  • You submit to the administrator a claim form with your bills which substantiate that you spent the money on permissible medical expenses which were incurred during a valid time period. You receive reimbursement. Most managers issue payments the same day that a claim is processed.
  • Many employers permit FSA debit cards allow employees to access money in the FSA directly (rather than seek reimbursement.) Debit cards also simplify the substantiation requirement. Many cards work with an inventory information approval system which separates eligible from ineligible items at the point-of-sale. These systems provide automatic debit card substantiation. Debit cards are usually administered by third party administrators (TPAs).
  • Documentation from the provider of services must indicate:
    • Date(s) of service.
    • Description of the service provided.
    • The dollar amount charged for the service.
    • The name of the service provider.
    • The name of the person for whom the services were provided.
  • You will also be required to provide a written statement that the expenses have not been paid or reimbursed under any other health plan coverage.

If you spend money on ineligible expenses: You have to replenish the account for the amount of the ineligible expense or be subjected to a penalty.

Advantages And Disadvantages Of A FSA


  • You pay pretax dollars for items you would pay for in any event. To get an idea of what this can mean, consider Jim W. He pays tax in the amount of 40% of his income (28% federal tax bracket, state tax of 4%, plus FICA taxes of say 7.65%). If Jim puts $2,000 into a FSA, he can deduct the entire $2,000. This saves him $800 in taxes.
  • In all states except New Jersey, contributions to an FSA dodge the state income tax as well as the federal tax.
  • A major advantage of Health Care FSAs is that you get a tax break on medical expenses without having to meet the threshold which the federal tax code requires in order to obtain a tax deduction.  Even then, the deduction is only for expenses in excess of the threshold. The threshold for the itemized deduction for unreimbursed medical expenses is 10% of the taxpayer’s Adjusted Gross Income (AGI). However, in the years 2013–2016, if either the taxpayer or the taxpayer’s spouse has turned 65 before the close of the tax year, the threshold is 7.5% of AGI. In 2017 the 10% threshold will apply to all taxpayers. (To learn more, see Medical Expenses.)


  • You have to guess at next year's medical expenses.

  • Money left in an FSA account at the end of the year is forfeited (nless an employer allows up to $500 to be rolled into the next year.) It is up to an employer to extend the deadline up to Mid-March of the following year. (NOTE: An employer can minimize this disadvantage. An employer can distribute what is left in an FSA account to employees if the amount is distributed equally among all participants.)

Expenses That Can Health Care FSAs Can Cover

A Health Care FSA covers eligible healthcare expenses not reimbursed by any medical, dental or vision care plan you or your dependents may have. Eligible dependents for this account include your spouse, children, and any other person who is a qualified IRS dependent.

The list of expenses which are eligible to be paid from a Health Care FSA is generous. It includes:

  • Health plan deductibles
  • Health plan co-pays
  • Eyeglasses
  • Dental work
  • Over-the-counter medicines which are prescribed by a doctor
  • Vitamins
  • Sunscreen

To Learn More

More Information

Health Care FSAs

What Happens To An FSA If Employment Is Terminated

If your FSA is employee funded: You have a right to the whole annual election. If there is money in the account when you get laid off, and no additional expenses were incurred while employed so you can't get at the money, you have the right to continue the plan as a COBRA right just like the health plan. (To learn more, see COBRA.) You can continue to put money into your FSA regularly for the rest of the plan year. You cannot continue the plan past the end of the year. (In this situation you have to be particularly careful to turn in your bills in a timely manner.)

If your FSA is employer funded: The plan ends on the termination of your job or when you go on disability.

How To Maximize Use Of An FSA


Find out what expenses are included in your plan. There are likely to be expenses you would not normally think would be included. For example, sunscreen and vitamins may be included as expenses that may be paid from an FSA.

  • For a list of expenses to consider which may be paid from an FSA  see: offsite linkClick on Participants/Employees. Then click on "Eligible Expenses." NOTE: Starting in 2011, over the counter medications may only be paid from an FSA if you have a doctor's prescription. (Your doctor can fax or e mail a prescription to the pharmacy.)
  • Check the expenses you incur or which you are considering against the list of those covered in your plan. 


  • Get receipts for all medical related expenses. Submit them in a timely manner.
  • Take advantage of free medical services and nearly free services with a small copayment offered by your employer or under your health insurance. For example, preventive checkups and tests.


If your insurance plan has a deductible, schedule needed procedures toward the beginning of the plan year so the deductible is used up early.


As you get close to year end:

  • If you contribute to the plan, try not to over contribute next year . Since FSAs have a "use it or lose it" rule, you will lose any money in the account at the end of the year (plus grace period if there is one in your plan.) In order to not lose your money, try to reasonably calculate how much you can pay from the account in the coming year. 
    • One guide is to look back to what expenses you paid for during the current year that could be paid for from the flexible spending account. If you paid for over the counter medications from the account during 2013, deduct them from what you expect to pay in 2014 unless your doctor will give you a prescription for them. (You may recall that  thanks to Health Reform 2010, over the counter medications can only be paid for from these accounts with a doctor's prescription.)
    • Think about what treatments you are likely to need in the coming year - including doctor visits. (The past year may be a starting point for thinking about how many visits you will have next year.) Your doctor's input may be helpful.
  • Consider having procedures now that need to be done, but you would have postponed.
  • Consider starting a therapy which is likely to continue beyond benefits permitted during a year. For example, physical therapy which requires more sessions than covered in a year. You can maximize the number of covered procedures this period and continue the therapy in the next period.
  • Stock up on covered items that you will need in the future. For instance, buy a spare pair of glasses or stock up on staples you are likely to need such as bandages. Get a prescription from your doctor for over the counter items which you can also stock up. 
  • Find out the outer time limit for submitting bills for reimbursement. This is known as the "run out" period - the period of time after the year ends that you have to submit receipts for expenses that you incurred prior to the year end. Employer can add up to 90 days beyond the end of the contract year to turn in bills for expenses incurred during the plan year. This includes reimbursements for what's not paid by the insurance company which you won't know until you receive the Explanation of Benefits (EOB) from the insurer.

NOTE: If you submit bills for purchases in even amounts, there are likely to be questions. For example, $100.00

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