Understanding FSAs: How Employees Can Use Flexible Spending Accounts

Properly understanding flexible savings accounts (FSAs) can make all the difference in whether your employees use them or avoid them. FSAs can be greatly beneficial to your employees, but only if they truly understand how they work. Here’s how you can make understanding FSAs and their benefits easier for workers.

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Defining FSAs

According to Healthcare.gov, FSAs are like savings accounts that must be spent by the end of the year. Employees contribute a percentage of their paycheck to their FSA every month. They can use that money to help pay for qualified medical expenses. The only downside is that a maximum of $500 of the FSA rolls over into the next year, and this is only if companies choose that rollover option.

Show Employees How Much They’ll Save

Any money that employees take from their paycheck and put into FSAs is pre-tax. In other words, that amount doesn’t count toward their taxed income. This can save them quite a bit of money, but just how much can be difficult to visualize. Showing your employees estimates of how much they can save in taxes may encourage them to use FSAs. For example, in 2017 employees could put a maximum of $2,600 a year into an FSA, the Society for Human Resource Management (SHRM) explained. If they just took the money as income instead and still spent it on health expenses, they’d not only be paying the health care costs but the income tax on that money. Have a health insurance agent help you put together a chart showing how much employees in different income tax brackets would save with an FSA.

Use FSAs on More Than You Might Think

FSAs can be used on more qualifying medical expenses than your employees may realize. FSAs can be applied to deductibles, co-payments, prescriptions, vision and dental care and chiropractor bills. FSAs can also be used for doctor and hospital visits, and even items such as acupuncture, braille books, contact lenses, fertility treatments, guide dogs, lodging for medical care, orthodontics, radon mitigation, vasectomies and more. If your health plan covers over-the-counter medicines, then FSAs can be used for that too, as long as the employee has a prescription for the OTC drug. The IRS offers a complete list of qualified FSA expenses.

Helping employees understand just how many expenses FSAs can cover will help them understand how practical an FSA can be. They’ll likely be spending their money on these expenses anyway, so why not spend it tax-free?

As you can see, properly understanding FSAs can make a big difference in whether or not your employees use them. Sometimes employees avoid putting much into an FSA for fear that they won’t spend the money before the year ends. A little education can go a long way in increasing employee participation.

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