What is Eligible for FSA Spending?
Flexible Spending Accounts (FSAs) have become an integral part of employee benefits packages, offering a tax-advantaged way to pay for healthcare and dependent care expenses. However, understanding what is eligible for FSA spending can sometimes be confusing. This article aims to clarify the types of expenses that can be covered by FSAs, ensuring that individuals can make informed decisions about their healthcare and dependent care spending.
Healthcare Expenses
The primary purpose of an FSA is to cover healthcare expenses. These include, but are not limited to, doctor visits, dental care, vision care, and prescription medications. Eligible healthcare expenses can be categorized into three main types:
1. Prescription Medications: Any prescription drugs prescribed by a licensed healthcare provider are eligible for FSA spending. This includes both generic and brand-name medications.
2. Over-the-Counter (OTC) Medications: While not all OTC medications are eligible, those that are considered “medically necessary” by the IRS are allowable. This includes items such as allergy medications, pain relievers, and diabetes supplies.
3. Medical Services: Eligible medical services include doctor visits, dental care, and vision care. This also includes preventive care services, such as vaccinations and annual physicals.
Dependent Care Expenses
FSAs can also be used to cover dependent care expenses for qualifying dependents. These expenses must be incurred for the care of a dependent under the age of 13 or a disabled dependent of any age. Eligible dependent care expenses include:
1. Daycare Services: Costs for sending a child to daycare, including before and after-school care, are eligible for FSA spending.
2. Before and After-School Programs: Programs that provide care for children before and after school are also eligible for FSA spending.
3. Summer Camp: Costs for sending a child to a day camp or overnight camp are eligible, provided the camp provides care for children under the age of 13.
4. Residential Care: Expenses for a dependent’s residential care, such as in a nursing home or adult day care center, are also eligible for FSA spending.
Limitations and Restrictions
While FSAs offer numerous tax advantages, it is important to be aware of the limitations and restrictions that apply to FSA spending. Here are some key points to consider:
1. Annual Contribution Limits: The IRS sets an annual contribution limit for FSAs, which varies depending on the type of FSA. It is crucial to stay within these limits to avoid potential penalties.
2. Use-It-Or-Lose-It Rule: Many FSAs are subject to the “use-it-or-lose-it” rule, which means that any funds not used by the end of the plan year must be forfeited. Some employers offer a grace period or carryover option to mitigate this issue.
3. Documentation Requirements: To claim FSA expenses, you must provide receipts and documentation to your employer. It is essential to keep detailed records of all eligible expenses.
In conclusion, understanding what is eligible for FSA spending is crucial for maximizing the tax advantages of this employee benefit. By familiarizing yourself with the types of healthcare and dependent care expenses that can be covered, you can make informed decisions about your FSA contributions and utilize this valuable resource to its fullest potential.
