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Understanding Flexible Spending

Some employers offer flexible spending arrangements as part of their benefit program. An FSA is a great option for some employees. Determine if an FSA makes sense for your family before deciding to enroll.

Depending on your personal situation, using flexible spending arrangements may save you money. As a military family, most of your standard health care costs are covered, but if you anticipate costs for braces, eyeglasses or other needs not covered in the upcoming year, you may want to contribute to an FSA. Review your options, develop a plan, understand the rules and regulations regarding your FSA and weigh the benefits and risks before you sign up.

What is an FSA? Some employers offer FSAs as part of an employee benefits package. Flexible spending arrangements can help you pay for eligible health or dependent care expenses with pre-tax dollars. Reduce your taxes and use before-tax money to pay out-of-pocket health care and dependent care expenses.

Types of FSAs: The two most common types of FSAs are medical and dependent care.

  • Medical: Make payments to doctors, dentists, orthodontists, psychiatrists and chiropractors from your medical FSA if these expenses aren't covered under another health plan. You may be able to pay for insulin, prescription drugs, eyeglasses, false teeth, hearing aids, wheelchairs and more from your FSA. Talk to your human resources department if you have any questions about your medical FSA and the expenses it covers.
  • Dependent Care: You can use your dependent care FSA to pay for eligible dependent care expenses such as child care for children under the age of 13, care for children who are physically or mentally incapable of self-care, and in some cases, elder care. You can use your FSA for dependent care so you and your spouse can work, look for work or attend school full-time.

Less common FSA types include the following:

  • Commuter reimbursement accounts allow you to set aside pre-tax dollars to cover eligible transportation and parking expenses. Parking, transit passes and vanpool expenses are typically eligible; tolls, expenses to operate a personal vehicle and nonwork-related parking or expenses are not covered.
  • Adoption reimbursement accounts provide pre-tax funds to cover adoption-related expenses, including adoption fees, court costs, attorney fees and related travel costs.

Maximum contributions for FSAs vary from year to year. Be sure to check with your human resources department for information on the specific FSA plans your organization offers. The Internal Revenue Service Publication 969 is a great source of information on flexible spending arrangements. Learn about qualifying for an FSA, making contributions, taking distributions and the maximum tax-deductible contribution allowed.

A word of caution on FSAs: You must spend all the money you've saved in any of your FSAs before the end of the FSA year or you will lose that money. So, beware of investing in an FSA if you expect a transfer or change in situation during the year. Planning is the key to keeping you from losing the money you've saved.

Talk to your human resources benefits coordinator to learn more about your company FSA programs and the eligibility period for enrolling. Estimate your potential costs for unreimbursed health care items and day care for the FSA period. If you have commuter or adoption expense plans, make sure you understand eligible expenses. Realize that if you change jobs or if the adoption falls through, you may cancel your plan participation, but you will probably lose any money you’ve saved in the plan. Determine if it makes sense for you to enroll or pass on the benefit.

Additional information on benefits and finances can be found on the Financial Planning and Budgeting section of the Employment Readiness lifecycle stage of MySECO. Contact a SECO career coach by calling Military OneSource at 800-342-9647 to ask general questions on FSA options or other benefits and finance questions. You can also use the Live Chat feature on MySECO for additional guidance. 

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