What's an FSA?

What is an FSA?

An FSA, or Flexible Spending Account, is an employer-sponsored account that lets you set aside pre-tax dollars for eligible healthcare expenses. This can include costs like co-pays, deductibles, prescriptions, dental and vision care, and even some over-the-counter items if properly documented. Unlike HSAs, FSAs are owned by your employer and are subject to a "use it or lose it" rule. Using your pre-tax FSA funds can save you up to 40% on your healthcare expenses.

How Does an FSA Work?

• Pre-Tax Contributions: The money you contribute is deducted from your paycheck before taxes, which can lower your overall taxable income.

• Immediate Availability: The full amount you elect for the year is available at the start of the plan year, even though the funds are deducted gradually.

• Use It or Lose It: Typically, any unspent funds at the end of the plan year are forfeited. Some plans may offer a grace period or allow a limited carryover, but these options vary by employer.

FSA Contribution Limits for 2025

For 2025, the IRS sets the maximum contribution limit for Health FSAs. As of the latest guidelines:

• Annual Limit: Up to $3,300 can be contributed to your Health FSA.

Note: This limit is determined by the IRS and can be subject to adjustments. Always check with your employer or current IRS guidelines for the most accurate information.

Additional Considerations

• Employer-Determined Rules: Your employer not only offers the FSA but also defines certain features, such as whether a grace period or a limited carryover is available.

• Eligible Expenses: FSAs can cover a broad range of medical expenses, but each plan may have its own list of eligible items. It's important to review your plan details carefully.

Benefits of an FSA

• Tax Savings: Because contributions are made pre-tax, your taxable income is reduced, which may lower your overall tax bill.

• Budgeting for Healthcare: An FSA helps you plan for expected medical costs throughout the year by setting aside funds dedicated solely to healthcare.

• Immediate Funds: With the entire elected amount available at the beginning of the year, you can manage larger expenses without waiting for payroll deductions.

Getting Started

1. Enrollment: FSAs are typically offered during your employer's open enrollment period. Be sure to sign up during this window.

2. Expense Planning: Estimate your expected healthcare expenses for the upcoming year to determine a contribution amount that best fits your needs.

3. Review Your Plan: Understand the specifics of your FSA, including deadlines for using funds, eligible expenses, and any potential grace period or carryover provisions.

In Summary

An FSA is a practical tool for managing out-of-pocket healthcare expenses by allowing you to use pre-tax dollars for a variety of medical costs. While it offers significant tax advantages and immediate access to funds, remember that unused money may be forfeited at the end of the plan year. Review your plan details carefully and consider your expected expenses to make the most of your FSA.

If you have any questions or need personalized advice, consider consulting a financial advisor or chatting with the Burst team – we'd be happy to help.