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Everything You Must Know About Flexible Spending Accounts

A Flexible Spending Account (FSA) is an employee benefit account into which you can deposit pre-tax funds to cover out-of-pocket expenses not covered by your insurance policies. Based on your tax situation, you could save up to 30% on those expenditures. While the IRS limits the amount you can contribute to each form of FSA, it does not count against your yearly limit if your employer contributes to your account. However, you cannot keep your contributions permanently, and you must use the money before the plan year ends or forego any remaining funds.

Types of FSAs

There are different types of FSAs available, and they include.

Healthcare FSAs

Healthcare FSAs are designed to assist employees in paying for out-of-pocket medical expenses with pre-tax dollars. Eligible charges include deductibles, copays, prescriptions, over-the-counter medications (insulin refills do not require a prescription), out-of-pocket dentistry, crutches, blood sugar test kits, and bandages. The IRS establishes the maximum contribution for healthcare FSAs each year, and you can use this money to pay for medical expenditures for yourself, your spouse, and any dependents you declare on your tax return. If you and your husband both have an FSA, you can contribute up to the maximum in each of your accounts.

Dependent Care FSAs

Dependent care FSAs were created to assist working parents and carers pay for the care that enables them to work. This includes a nanny, babysitter, daycare, preschool, summer day camp, before and after school care for children under 13, and adult day care for a physically or mentally impaired spouse, parent, or other family. These costs must enable you to work or look for work. That means volunteering isn’t an option, nor is hiring a babysitter for a date night.

Another criterion to be aware of is that the dependents for whom you are paying for care must reside with you for most of the time. If you and your spouse divorce, only the parent, who is the primary caregiver, can contribute to the Dependent Care FSA.

Limited Purpose FSAs

You can only contribute to a Limited Purpose flexible spending account while also contributing to an HSA. This is since these FSAs can only cover out-of-pocket dental and vision expenses. If your employer provides both, take advantage of both since using your Limited Purpose FSA for dental and vision expenditures helps you to save more money in your HSA for retirement. However, because you can pay for dental and vision expenditures with both your HSA and your Limited Purpose FSA, you cannot double-dip by submitting the same expense for reimbursement from both accounts. 

You must choose one.


A flexible spending account is a key tool in the arsenal of employer benefits as the cost of health and dependent care continues to climb and as more of the financial burden is placed on the employee. They assist you in saving money and relieving the anxiety of having to pay for these unavoidable charges. This means you have more time and mental energy to devote to your work, family, and simply living your life.