A health care FSA is also “worth it” to account holders because it gives them access to the entire annual amount elected beginning on the very first day of the plan year for medical, dental, & vision costs. (Please note: The IRS excludes this feature for dependent care.)
Let’s consider an example that takes expected annual out of pocket costs into account.
Let’s say you determine that you will have:
- A $30 monthly prescription ($360/yr.)
- $200 eyeglasses for your kiddo
- $30 Copay for that nasty sinus infection you know you get every year
That is a total of $590 in known/expected out of pocket costs.
If you are in the 12% tax bracket, and you opt to have that $590 payroll deducted over the whole year, you have an extra $70 in your pocket because you don’t pay taxes out of your paycheck on that amount. And if the budget is already tight, every penny counts!
Perhaps even more meaningful, you have access to the whole $590 on the very first day of the plan year pre-loaded on a debit card. That $590 will be taken out of your paycheck over the course of the plan year.
This arrangement makes paying for anticipated expenses easier to do. In our example, that means it stings a little bit less when you have to pay for those glasses and when you pick up your prescription each month.
And if you end up not needing glasses (or any other out of pocket costs you originally expected), you can still use that money for other medical, dental, or vision expenses instead.
And, depending on the way your employer designs the plan, you may either have additional time at the tail end to incur expenses, called a grace period, or you may be able to rollover any unused balance up to $500.
See “What happens if I do not claim all the money in my account?” in our FSA FAQs for more details.