Known for their "use it or lose it" feature, flexible spending accounts (FSA) provide ways to reduce your healthcare costs by covering various healthcare items and procedures.
A flexible spending account is a health benefit provided by an employer. Employees can contribute pretax cash to this tax-advantaged account to pay for eligible health expenses.
Table of Contents
- 1 What is a flexible spending account(FSA)?
- 2 How does an FSA work?
- 3 What are some items that were newly covered by flexible spending accounts (FSAs) in 2021?
- 4 OTC products that are Health FSA-eligible items
- 5 CARES Act repeals “Medicine Cabinet Tax” on OTC reimbursements and expands items eligible for coverage
- 6 Shopping for Health FSA-eligible items
- 7 FSA shopping online
- 8 Paying for FSA-eligible purchases
- 9 Can FSA and HSA balances roll over each year?
- 10 How much can you contribute to an HSA and FSA?
- 11 Where do unused FSA funds go?
- 12 Can you move funds from an HSA to an FSA?
- 13 What happens to your HSA if you switch to an FSA?
- 14 Are dental expenses covered by an FSA and HSA?
- 15 What dental expenses are not covered by an FSA and HSA
- 16 Frequently asked questions
- 17 The bottom line
What is a flexible spending account(FSA)?
Participants in the FSA set aside a percentage of their earnings to pay for tax-free medical products and services. An FSA can, for example, pay for an eye test, chiropractic visit, or massage therapy. The expenses must be medically essential to qualify for FSA coverage. If you’re unsure what qualifies for FSA coverage, the IRS has a comprehensive list of “qualified expenses.”
Limitations apply since this account has built-in tax benefits. Health FSAs are capped at $2,750 per employer in 2021, with unused money rolling over to 2022. Consult your supervisor to determine your plan structure and benefits.
- Standard FSA
This type of FSA is offered by most employers. It covers medical, dental, vision, and pharmacy expenses. If you have a Standard FSA, you are ineligible for contributing to an HSA. If there is a checkmark in the first column of the eligible expense list, this expense is covered under the Standard FSA. If there isn’t a checkmark, the expense is not covered under the FSA.
- Limited-Purpose FSA
This type of FSA (also known as HSA-Compatible FSA) is for people who want to contribute to an HSA and who also have expected dental and vision expenses. Because this type of FSA does not cover any medical or pharmacy expenses, it does not disqualify you from contributing to an HSA. A Limited-Purpose FSA lets you take advantage of both an HSA and FSA. If there is a checkmark in the second column of the eligible expense list, this expense is covered under the Limited FSA. If there isn’t a checkmark, the expense is not covered under the Limited FSA.
You’ll also need to submit a Letter of Medical Necessity, signed by your doctor, to prove that this was a medically necessary therapy for a known medical condition.
In addition to the required itemized receipt, the Affordable Care Act (ACA) requires you to submit a genuine prescription from your doctor. To ensure that this over-the-counter treatment is given for a recognized medical condition, the prescription must be issued by your doctor (on a prescription pad or form) and dated on or before the date you incurred the expense.
How does an FSA work?
A specific amount of money is set aside before taxes with each paycheck you get. This pretax money is for FSA spending, and it’s supposed to be used on approved healthcare expenses all year. While the exact amount varies based on your tax rate, there are calculators that can assist you in estimating your savings.
You, your spouse, and your dependents can use your FSA funds to pay for a range of charges. The IRS decides which expenses are eligible for reimbursement by an FSA. Select your account type from the list below to see which expenses are covered by FSAFEDS:
- Health Care FSA
- Limited Expense Health Care FSA
- Dependent Care FSA
These lists are comprehensive and cover the most prevalent sorts of expenses, but they do not cover everything. Even if an item appears on a list, that does not mean it will be reimbursed. Additional documentation, such as a Letter of Medical Necessity, may be required for any expenses indicated as possibly qualified.
What are some items that were newly covered by flexible spending accounts (FSAs) in 2021?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020, allows your hard-earned FSA dollars to go further.
This bill increased the list of FSA-eligible medical costs and eliminated the need for a prescription for numerous medications. Here are some other products to add to your FSA shopping list:
- Monthly period supplies (cups, tampons, liners, period underwear, and pads)
- Personal protective equipment (hand sanitizer, masks, sanitizing wipes)
- Over-the-counter medications (Tylenol, allergy relief, cold medicine)
OTC products that are Health FSA-eligible items
Here’s a list of Health FSA-eligible items you can buy without a prescription:
- Acne light therapy
- Athletic and orthopedic braces and supports
- Breast pumps and accessories
- Blood glucose monitors and testing strips
- Blood pressure monitors
- Contact lenses and supplies
- Denture cream and cleansers
- Eye drops
- First aid supplies and kits
- Glucosamine supplements
- Hot and cold packs
- Incontinence products
- Lip balm
- Motion sickness aids
- Nasal spray
- Pregnancy and fertility tests
- Prenatal vitamins
- Reading glasses
- Shoe insoles and inserts
- Sunscreens with SPF ratings of 15 and above
- Vaporizers and inhalers
- Walking aids and wheelchairs
CARES Act repeals “Medicine Cabinet Tax” on OTC reimbursements and expands items eligible for coverage
The Coronavirus Aid, Relief, and Economic Security (CARES) act removes the requirement for a physician’s prescription for many over-the-counter items eligible for Health FSA, HSA, and HRA coverage, while expanding the list of eligible items and providing safe harbor to HDHPs associated with an HSA to cover pre-deductible telehealth and other remote care services. Read, Coronavirus “CARES Act” restores OTC coverage for FSAs, HRAs, HSAs to learn more.
These Health FSA-eligible items are now also available without a prescription, thanks to the CARES act:
- Acne medication and treatments
- Antacids and acid reducers
- Anti-arthritis medications
- Antibacterial gels and ointments
- Anti-diarrheal products and laxatives
- Antihistamines and allergy prevention and treatment drugs
- Anti-itch medications and creams
- Cold and flu remedies
- Diaper rash creams and ointments
- Hemorrhoid treatments
- Incontinence supplies
- Medical supplies
- Medicated lotions and sunscreens
- Medicated personal products
- Menstrual products
- Oral care products
- Pain relievers, including menstrual and migraine relief products
- Sinus products
- Sleep aids
- Smoking cessation products
- Sunscreens with SPF ratings below 15
Shopping for Health FSA-eligible items
Many of us use Health FSA-eligible items on a daily basis, as evidenced by the lists. So, you probably know where to get them, but does it matter in terms of your FSA?
Not in the least. You can find them at a drugstore or a grocery shop; at big-box stores like Target or Wal-Mart; or at a locally owned market or pharmacy. Just make sure you have a receipt that clearly shows what you bought and how much you paid, and then maintain the receipt for the tax year.
FSA shopping online
You can also purchase Health FSA-eligible items online.
Health Flexible Spending Accounts have grown in popularity to the point where major pharmacies like Walgreens and CVS now offer dedicated online FSA shops. You’ll also find the FSA Store, which focuses entirely on Health FSA-eligible items, as its name implies. Amazon has just entered the industry of Health FSA-eligible items by launching its own specialty shop. All of these online retailers make it simple to find what you’re looking for while still keeping track of your FSA purchases.
Paying for FSA-eligible purchases
There are two ways to pay for Health FSA-eligible items:
- Benefits debit card
For Health FSA items, most internet sellers and many local brick-and-mortar retailers accept benefit debit cards. Ask your Health FSA administrator if your benefit plan offers this convenience if you don’t already have one.
- Reimbursement claim
If a retailer doesn’t accept benefit debit cards, or if one isn’t accessible through your Health FSA plan, you’ll have to pay for the item(s) yourself and then have your employer refund you.
Submit a refund claim using the form provided by your employer. The form might be printed or submitted online through a rewards portal.
Simply complete the form and attach your receipt (paper or scanned). Your reimbursement will be received promptly, usually within 30 days. Keep a copy of all claim forms and receipts that you send in.
Can FSA and HSA balances roll over each year?
Health savings accounts (HSAs) and flexible spending accounts (FSAs) can help you save money on medical expenses. In most cases, you won’t be able to donate to both accounts at the same time.
While FSAs are notorious for having a “use it or lose it” policy, HSAs allow you to roll over any unused funds each year and invest them.
With a rollover, you can move accounts if your career or family situation changes. Rollovers are handled differently in HSAs and FSAs.
In 2022, healthcare prices are predicted to grow by 6.5 percent. You can reduce your out-of-pocket costs by using services like GoodRx discounts. Health savings accounts (HSAs) and flexible spending accounts (FSAs) are two types of financial accounts that can help you save more money.
HSAs (Health Savings Accounts) and FSAs offer appealing tax benefits, particularly if you need to cover eligible medical expenses. Your contributions to your HSA and FSA are tax-free. For qualified expenses such as blood pressure monitors or prescription glasses, you can withdraw funds tax-free. If you don’t spend all of your funds by the end of the year, you may be able to roll them over to the following year. In addition, in 2021, new legislation will extend the rollover possibilities for FSAs.
How much can you contribute to an HSA and FSA?
The IRS establishes annual contribution limits and modifies them for inflation every year. An individual plan HSA can now be funded up to $3,650 in 2022, up from $3,600 in 2021. For a family plan, you can contribute up to $7,300, which is a $100 increase from 2021. The IRS also allows persons aged 55 and over to make a $1,000 catchup contribution. The following table displays the various HSA contribution limits:
(55 and over)
Let’s say you’re 58 years old and decide to open an individual HSA account. You can make a contribution of up to $4,650 in 2022, which includes the $1,000 catchup contribution. You can donate up to $8,300 if you’re enrolled in a family plan.
The contribution limits for a flexible spending account (FSA) are lower. If you have a family plan, you won’t be able to increase your contributions. You can contribute up to $2,850 to an FSA in 2022. In 2021, the maximum contribution was $2,750. Before deciding on a contribution amount, consult with your employer. It’s possible that your company won’t let you contribute as much as the IRS allows.
Where do unused FSA funds go?
If you have money left over in your FSA account, it will be transferred to your employer. The cash may be used by the employer to cover the FSA plan’s administrative expenditures. Depending on IRS guidelines, they may also be able to apply the funds to employee FSAs for the following year.
Can you move funds from an HSA to an FSA?
No, you can’t. The IRS does not allow for this. You also cannot roll over an HSA to a health reimbursement arrangement (HRA), 401(k), or individual retirement account (IRA).
What happens to your HSA if you switch to an FSA?
You can keep your HSA if you enroll in an FSA. You can use the money in the account to pay for qualified medical costs tax-free. This is also true if you have multiple HSAs.
If you move to an FSA, you won’t be able to make any new contributions to your HSA. Enrollment in an FSA is considered by the IRS to be disqualifying medical coverage.
If your employer provides a limited-purpose health FSA, you can contribute to both the FSA and HSA. This account only allows payments for the following qualified expenses:
- Preventative-care items that your plan does not cover
Your employer may allow you to pay for any FSA eligible medical expense if your expenses exceed your plan’s deductible.
Legal and tax difficulties can be difficult to navigate. It’s preferable to obtain professional counsel to avoid unforeseen taxes or fees.
It’s critical to understand the different sorts of costs that qualify for an FSA or HSA before enrolling.
Are dental expenses covered by an FSA and HSA?
An FSA or HSA can be used for yourself, your spouse, and any dependents. Your children, siblings, and parents are among them. The expenses must “alleviate or prevent a bodily or mental condition or illness,” according to the IRS.
Many dental expenses, such as oral surgery, implants, and braces, are covered by FSAs and HSAs. These fees can cost thousands of dollars, so the savings can add up quickly. Dental implants can cost somewhere between $3,000 and $4,500, while full-mouth periodontal surgery can cost anywhere between $4,000 and $10,000.
The following are dental expenses that are typically covered by an FSA or HSA:
- Application of sealants
- Dental bleaching
- Dental bridge
- Dental crown
- Dental veneers
- Gum cleaning
- Gum-tissue graft
- Full-mouth dental reconstruction
- Full-mouth periodontal surgery
- Inlay and outlay
- Models or molds
- Root canal
- Teeth cleaning
- Tooth contouring
- Wisdom-teeth removal
You can even use your FSA or HSA to pay for travel expenses if the trip is for a qualified medical procedure at a dentist’s office. Fees for a ride-share service, gasoline, tolls, and parking are all included in travel expenses.
What dental expenses are not covered by an FSA and HSA
You can’t utilize an FSA or HSA to pay for reimbursed expenses like insurance premiums. Expenses for general health or aesthetic objectives are likewise prohibited by the IRS.
- Denture adhesives or creams
- Denture cleaners
- Nonprescription medicines
- Teeth-whitening items or procedures
- Vitamins or herbal supplements
Frequently asked questions
- Why do I have to spend my FSA dollars before a certain date?
The majority of FSA participants are on a “use it or lose it” plan, which means that any funds remaining in your account at the end of the year must be forfeited. You won’t be able to get the money out of your account in any other manner, and you won’t be able to move it to another FSA. As a result, it’s critical to remember the annual deadline of December 31.
The good news is that many businesses give you up to two and a half months to spend the money once the new year begins, giving you until March 15 to do so. However, you should check with your employer because grace periods can vary.
- What can I purchase with my FSA dollars?
Everyday health care items such as bandages, thermometers, and glasses are common purchases. Medical expenses not covered by a health plan, such as deductibles and copays for dependent daycare, as well as over-the-counter medication, may be eligible.
The disadvantage is that the specifics of what you can spend your FSA funds on are determined by your employer’s plan. The bright side? By shopping at the FSA Store, you can avoid doing considerable research.
Rather than letting your hard-earned money go to waste, we’ve compiled a list of more than 30 ways to spend it at the FSA Store.
- What happens if I spend my flexible spending account (FSA) incorrectly on ineligible items?
Be aware that under FSA tax laws, not all healthcare costs are created equal.
Daily care products such as Vaseline, toothpaste, and deodorants are not eligible for a flexible spending account. Memberships to gyms and health insurance subscriptions are also off the table. It’s possible that you’ll use your FSA funds to pay for something that isn’t eligible. Don’t worry; you won’t face any penalties from the IRS, but your plan sponsor may ask you to replenish the cash.
You may be able to avoid the normal list of FSA-eligible expenses if you receive a letter of medical necessity (LMN) from your doctor. If your eligibility is in doubt, your employer may request additional information from your doctor as well as more details about how you intend to utilize the product or service.
- Can I use my 2021 flexible spending account (FSA) for 2022 expenses?
Typically, you must use your FSA dollars by the end of the plan year or risk losing them — this is known as the “use-it-or-lose-it” component of FSAs. This is not the case with FSA money in 2021 and 2022.
Employers may grant an FSA rollover extension to employees under the Consolidated Appropriations Act of 2021 (CAA), although it is not required. If an employer accepts these relief measures, plan participants can roll over all unused amounts in their FSA from the 2021 plan year to the 2022 plan year. However, you should double-check your plan terms with your employer.
- What can I do with leftover flexible spending account (FSA) money?
This is a great time to make a list of your upcoming costs and make a budget. Fill your medicine cabinet with health and wellness goods, or get ready for your next vacation with your favorite branded sunglasses. Find out when your FSA deadline is, and make sure you don’t squander any of your FSA funds. Any money that is not used will be returned to your employer. So, throughout the year, keep a lookout for ways to put your FSA dollars to good use.
FSAs can be extremely beneficial for some healthcare services, including dental care. The tax advantages may help you save money on typical medical products and procedures. However, you must be cautious about what constitutes an eligible expense. You may be subject to taxes and penalties if you use your FSA to pay for non-qualified costs. Before making a purchase or scheduling a medical treatment, make sure to consult your FSA provider about acceptable expenses and paperwork requirements.