WHAT IS AN FSA?

When Smith heard about FSAs a few years ago, he thought they sounded too good to be true.  He’s a true believer now. Like clockwork, he pays $1500 in pre-tax dollars into the account when it’s time to sign up.  He gets it all back in reimbursement checks throughout the course of the year.

An FSA is a benefit program offered by employers that allows you to set aside pre-tax money for certain health care expenses. 

The pre-tax part is the key.  He pays no taxes on that money—and he gets reimbursed tax-free.  In Smith’s 28% tax bracket, that’s quite a savings. In other words, he keeps more of his money.

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How they work is simple.  You elect how much money you transfer from your paycheck before taxes are taken out.  When you have an out-of-pocket expense, you submit your receipts and appropriate documentation and get reimbursed.

Many things are included.  It varies from plan to plan.  Just keep in mind not everything is covered. Massages, for example, may or may not be covered.  You may need a doctor referral for it to be included.  Check with your insurance company FIRST.

THE DOWNSIDE

What you don’t use, you lose.  So in the case of Tom Smith, if he doesn’t have enough out-of-pocket expenses to cover the $1500 he sets aside, he forfeits whatever is left.  That’s why it’s critical to accurately predict what your expenses will be.  Or you could end up losing money on the deal.  Most insurance companies have online calculators you can use to help you figure out what you should set aside. The outsourcing firm SHPS has a very good calculator http://www.shps.net/myshps/fsa_calculator.asp and so does the Crosby Benefit Systems website http://www.crosbybenefits.com/fsa-calc.html.

Since signing up for the FSA more than three years ago, Smith has never looked back.  As a father who has many bills to pay, he enjoys making an extra buck when he can.