Simplified Explanation Of A Flexible Spending Account
Flexible Spending Accounts are tax-favored accounts that allow participants to set aside money pretax for eligible Medical and Dependent Care costs. Flexible Spending Accounts (FSAs) are a benefit offered by most employers that allow an employee the opportunity to put some of his/her salary aside before taxes to pay for many common out-of-pocket expenses. They decrease earnings, thus decrease the income tax burden. Healthcare FSA's help you reduce healthcare costs and make budgeting easier.
Most cafeteria plans offer two different flexible spending accounts; one is for qualified medical expenses and the other is for dependent care expenses. The other FSA, a Dependent Care Flexible Spending Account, pays for childcare or adult dependent care expenses that are necessary to allow you or your spouse to work, look for work, or attend school full-time. With a Dependent Care FSA, you can only be reimbursed up to the amount currently available in your account. Use-it-or-lose-it refers to an IRS requirement that if you do not spend all the money you have elected into your HCFSA or DCFSA accounts, that money remaining in an FSA after March 15 of the following year will be forfeited because it cannot be rolled over or refunded to you. Any money that you elect to set aside in a flexible spending account for a given Benefit Period may be used only for eligible expenses you incur for services received during that Benefit Period. You have until April 30, 2008 to submit claims against your 2007 account. So, it's very important that you plan carefully when deciding on how much to allot in your FSA account(s).
Only expenses incurred on or after your effective date through the end of the Benefit Period are eligible for reimbursement. Insurance premiums, including those for Long-Term Care and Temporary Continuation of Coverage, are not eligible for reimbursement. The IRS has concluded that non-prescription antacids, allergy medicines, pain relievers, cold medicines and other medicines or products purchased to alleviate or treat the personal injuries or sickness of you and/or your dependents are eligible items for reimbursement through a HCFSA. Vitamins and other dietary supplements that are merely beneficial to you and/or your dependent remain ineligible for reimbursement. Acceptable evidence includes detailed receipts, which contain the following information:
1. Type of service or product provided (the name of the prescription is not required, as long as the receipt indicates that the product was a prescription drug).
2. Date expense was incurred, yours, your spouses or dependents name for whom the service/product was provided, unless it is an over-the-counter medication.
3. The person or organization providing the service, unless it is an over-the-counter medication, the amount of the expense.
Note: If your plan participates, you may choose the option of paperless reimbursement, which means you do not have to manually prepare and file certain health care claims.
The contributions you make to a Flexible Spending Account are deducted from your pay BEFORE your Federal, State, or Social Security Taxes are calculated and are never reported to the IRS. Because they decrease earnings, they decrease the income tax burden. Healthcare FSAs help you reduce healthcare costs and make budgeting easier. A Flexible Spending Account allows you to pay for out-of-pocket expenses with pre-tax money. In order to take advantage of the tax savings, you are required to enroll in the Flexible Spending Accounts each year during your employer's open enrollment period. Any expense that is considered a deductible medical expense by the Internal Revenue Service and is not reimbursed through your insurance can be reimbursed through the Flexible Spending Account. By law, employees forfeit any unspent funds left in the flexible spending account at the end of the plan year.
Most cafeteria plans offer two different flexible spending accounts; one is for qualified medical expenses and the other is for dependent care expenses. The other FSA, a Dependent Care Flexible Spending Account, pays for childcare or adult dependent care expenses that are necessary to allow you or your spouse to work, look for work, or attend school full-time. With a Dependent Care FSA, you can only be reimbursed up to the amount currently available in your account. Use-it-or-lose-it refers to an IRS requirement that if you do not spend all the money you have elected into your HCFSA or DCFSA accounts, that money remaining in an FSA after March 15 of the following year will be forfeited because it cannot be rolled over or refunded to you. Any money that you elect to set aside in a flexible spending account for a given Benefit Period may be used only for eligible expenses you incur for services received during that Benefit Period. You have until April 30, 2008 to submit claims against your 2007 account. So, it's very important that you plan carefully when deciding on how much to allot in your FSA account(s).
Only expenses incurred on or after your effective date through the end of the Benefit Period are eligible for reimbursement. Insurance premiums, including those for Long-Term Care and Temporary Continuation of Coverage, are not eligible for reimbursement. The IRS has concluded that non-prescription antacids, allergy medicines, pain relievers, cold medicines and other medicines or products purchased to alleviate or treat the personal injuries or sickness of you and/or your dependents are eligible items for reimbursement through a HCFSA. Vitamins and other dietary supplements that are merely beneficial to you and/or your dependent remain ineligible for reimbursement. Acceptable evidence includes detailed receipts, which contain the following information:
1. Type of service or product provided (the name of the prescription is not required, as long as the receipt indicates that the product was a prescription drug).
2. Date expense was incurred, yours, your spouses or dependents name for whom the service/product was provided, unless it is an over-the-counter medication.
3. The person or organization providing the service, unless it is an over-the-counter medication, the amount of the expense.
Note: If your plan participates, you may choose the option of paperless reimbursement, which means you do not have to manually prepare and file certain health care claims.
The contributions you make to a Flexible Spending Account are deducted from your pay BEFORE your Federal, State, or Social Security Taxes are calculated and are never reported to the IRS. Because they decrease earnings, they decrease the income tax burden. Healthcare FSAs help you reduce healthcare costs and make budgeting easier. A Flexible Spending Account allows you to pay for out-of-pocket expenses with pre-tax money. In order to take advantage of the tax savings, you are required to enroll in the Flexible Spending Accounts each year during your employer's open enrollment period. Any expense that is considered a deductible medical expense by the Internal Revenue Service and is not reimbursed through your insurance can be reimbursed through the Flexible Spending Account. By law, employees forfeit any unspent funds left in the flexible spending account at the end of the plan year.
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