AnÂ FSA card is theÂ debit card that allows you to access money in yourÂ flexible spending account. This is an account that is set up alongside yourÂ health insurance, and you can choose to have pretax dollars from your paycheck routed into it. ThoseÂ funds can then be used toÂ pay for certain qualifyingÂ medical expenses.
The biggest benefit of aÂ flexible spending account (FSA) is that it can reduce how much youÂ pay in taxes. You don’tÂ pay taxes on the money that is deposited into this account out of your paycheck. If you know you’ll spend all of the money on qualifyingÂ expenses within the time period required, you can cover medical costs you’d already have toÂ pay for while lowering your tax burden.
Some people also like FSAs because they lighten the burden of health care costs throughout the year. If you put money from every paycheck into the FSAÂ savings account, then it may be easier for you toÂ pay for prescriptions, copays and deductibles later.
Flexible spending account options may be offered alongside yourÂ employer-sponsored health plans. They are also sometimes an option when you purchase insurance in the health care marketplace. However, you must choose to enroll in theÂ FSA planâit’s not an automatic part of your coverage, even when it’s available.
Once you enroll, you can decide how much of your pretax income you would like to contribute to the account. The IRS limits you to contributing $2,650Â per year to this account. Someone who is married can contribute up to the same amount into their spouse’s FSA.
Once you fund your FSA, you can use the account toÂ pay forÂ eligibleÂ medical expenses or buy eligible qualifying products. One way of doing so is by using yourÂ FSA card just as you would use anyÂ debit orÂ credit card at check out.
Remember to only use your FSA onÂ eligible expenses, and keep yourÂ receipts and another backup. If you’re ever audited, the IRS may ask you to prove that you used your FSA money for approvedÂ spending.
FSA funds are typically used to cover medical and health-relatedÂ expenses. Some things you can use your FSA to cover include:
Yes, you can use yourÂ FSA card for onlineÂ spending, as long as it’s one of theÂ eligible expenses listed above. That might include making a payment on a bill to your doctor’s office via an online portal or buying prescribed medical supplies via an online vendor.
In rare cases when you need toÂ pay for qualifyingÂ expenses but the provider or store doesn’t take yourÂ FSA card, you can use your card to withdraw cash to make the payment. However, you must keep all the documentation proving that the amount you withdrew was used forÂ eligible expenses. If you’re ever questioned by the FSA provider or the IRS about the withdrawal and you don’t have the supporting documentation, you may be required toÂ payback thoseÂ funds.
The biggest disadvantage of an FSA account is that theÂ funds are use-it-or-lose-itâeven though it’s your money. FSA providers let you know what the deadline is for using all of your contributions from the year. They typically range from January through March of the following year.
Because you can’t simply withdraw the unusedÂ funds or spend them on something else instead, make sure that you estimate yourÂ medical expenses using as much information as you can. And when in doubt, estimate slightly lower so you aren’t left with a loss at the end of each year.
An FSA andÂ aÂ health savings account (HSA) are slightly different. HSAsÂ are only available to individuals withÂ high deductible plans. Because of this, the contribution limits are higher. HSA balances also roll over to be used for the next year, unlike FSA balances.
“While FSA cards look and behave like credit orÂ debit cards where they’re accepted,” says credit scoring expert Barry Paperno, “likeÂ debit cards, they don’t appear on your credit reportÂ or get included in your credit scores. That’s primarily because they’re not truly credit accounts where a lender is making a loan to you. Rather, the FSA consists of money you have transferred, or will be transferring, from your paycheck.”
If you’re worried that your FSA might impact your credit score, it might be a sign of general anxiety about what’s on your credit report. Sign up at Credit.com to get access to your credit scoreÂ and reports for greater peace of mind.
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