Flexible Spending Account
When managing a disease like diabetes, you may find that insurance doesnt cover everything you need in order to keep tight control. To combat this, consider signing up for a Flexible Spending Arrangement, better known as a Flexible Spending Account (FSA).
An FSA account is an employer-sponsored benefit that allows the employee to save pre-tax dollars usually about $5,000 for expenses not covered by insurance. The money is taken out through equal payroll deductions before the State, Federal, and Social Security taxes are withheld. This reduces your taxable income possibly lowering your tax bracket and may reduce your tax bill. The open enrollment period to sign up for this benefit is usually during the last quarter of the year. Contact your employer for details.
There are two types of FSA accounts: medical and dependant care. For the medical account, the IRS allows you to contribute up to $2,500, whereas the benefit cap for a dependent care account is $5,000, whether one person is contributing or two.
One of the perks of the medical account is that the money is deposited and made fully available from the beginning. Should an emergency arise, you can pay the bill and get your money back up to the elected amount, of course. You may even be able to get a debit card for this account but this is not currently a widespread offer so ask your employer. If you should elect to have a dependent care account, the money is deposited in equal installments throughout the benefit year so you can only be reimbursed the amount you currently have in your account.
In order to be reimbursed for your dependent care and/or medical expenses, you must submit a receipt for a qualified medical expense, which includes but is not limited to:
- Prescription/over-the-counter medications
- Doctor visits/co-payments
- Test strips
In the case of dependent care expenses, you will also need the providers tax ID number or social security number. For this account, the qualified expense includes but is not limited to:
- Licensed day care provider
- Sitter (non-relative outside your home)
- Home health aide
- Summer camp
Electing to have an FSA account is not a decision to make lightly. This is a use-it-or-lose-it account so you should choose an amount you know you will spend in a year. Also, dependant care and medical accounts are separate entities. You cannot transfer excess funding from one to the other. Once you enroll, you cannot make a change unless you have a major life event marriage, divorce, adoption, birth, death, or the loss of your spouses insurance.
You are reimbursed for medical and dependent care expenses incurred within one calendar year. However, you may incur expenses for an additional 2 1/2 months and still be reimbursed, up to March 15. After that date, you forfeit anything you do not claim.
Remember, this is not free money. These are your pre-tax dollars. But if your medical costs are beyond what your insurance will bear, an FSA account can prove to be a useful tool in managing your diabetes.
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