How They Work
FSAs may be offered by your employer in addition to your regular health plan. They are also known as cafeteria plans because they offer you a variety of coverage options.
You can choose your FSA during your company's open enrollment period at the end of the year. This is the time when you pick your healthcare options for the upcoming year. At that time, you select the amount of money you want taken from your paycheck every month (before taxes are taken out). The money is placed into your flexible spending account and goes toward paying your medical bills during the year.
You choose this amount by predicting the cost of any medical services or products you expect to have over the year. It can include things like prescription medicines and therapy. You save money because you do not pay tax on these deductions. You will want to try to use all the money. You may give up any money that cannot be not rolled over from year to year.
An advantage to using this account is that you can spend up to the total you will be investing for the year. You do not need to wait for your monthly deductions to add up to the amount you need.
You need to plan well and stay organized to benefit from an FSA. You will need to have good records of what you spend on healthcare. This can help you estimate how much you need in the FSA. The amount will be taken out of your paycheck and can only be spent on healthcare. You also can't change the amount of your monthly deduction until the next open enrollment period.
You will also need to keep track of your health spending and submit all your receipts. The total of these receipts will then be subtracted from your FSA and reimbursed to you. Some FSAs give you a debit card to use for purchases, but you will still need to keep good records.