Your Healthcare Flexible Savings Account (FSA) .. Here’s How To Think About It - 2025 Edition
It's usually a good idea. Just be careful of one thing.
Go to www.fsastore.com
Figure out roughly how much you would be able to spend on the items that are in that store. Once you have determined an estimated amount, add in likely co-pays, deductibles and excesses for any medical visits for which you will be responsible as shown in the description of your health insurance.
If the total of all these estimates is equal to or less than $3,300 for the year (the maximum for 2025), then sign up for that particular amount in your Healthcare FSA.
If it is likely to be higher, then sign up for the max. The amount will be taken from your pre-tax salary and you will receive what amounts to a gift card for that amount that you can use to buy those items at pharmacy stores, online stores like the FSA Store, and use for doctor copays and deductibles, specialist visits, prescriptions etc. Since you will be paying for all these items with pre-federal, state and social security tax dollars, it is the equivalent of getting them all at anywhere from a 20%-50% discount, depending on your marginal tax rate.
Healthcare FSAs can only be contributed to by an individual. There is not a family contribution option. Both you and your spouse can each have your own Healthcare FSA through your respective employers and both contribute the maximum amount to each account. For example, if you each contribute the maximum of $3,300 to your Healthcare FSAs, you will have a total of $6,600 for your family.
You can use funds from your Healthcare FSA to pay for eligible medical costs for yourself, your spouse and/or your tax dependents, regardless of the medical insurance in which they are enrolled. Be sure to keep track of which account is being used for documentation purposes. To use funds for your dependents, they must be claimed on your tax return.
The one thing you need to be careful about is to keep track of what is left on the account balance and ensure that you have reduced it to $660 (20% of the maximum allowable contribution) or less by December 31st 2025, otherwise you forfeit whatever amount is over that threshold (the $660 or less amount is rolled over to the following year, if still in the account by then). You then have until the end of March the following year to spend that rolled-over amount or you risk forfeiting it.
This is, however, usually never much of a problem. The range of items you can buy with your FSA card is so wide (see the FSA Store website above) that you should comfortably be able to spend down to a $660 balance if necessary, sometime in November or December after checking your balance in, say, the middle of October each year. And if you have selected your initial amount properly, this situation should not arise anyhow.
One other thing to bear in mind is that any unused money in your Healthcare FSA has to be returned to your employer once you leave your job. You may have the option to continue access to your funds through COBRA, but you can't use your FSA contributions to pay for health insurance premiums either through COBRA or in the private market.
Note: This post only refers to Healthcare FSAs, the rules and limits for Dependent Care FSAs are different.
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