Using A Health Care Flexible Spending Account

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When I started my first full time physical therapy job, I was given a thick book filled with detailed information on the various benefits I would receive. To be honest, my lack of experience combined with the size of the book were quite overwhelming. My wife recalls a similar feeling when she started at her first occupational therapy job as well.

However, we slowly realized that knowing the ins-and-outs of these benefits could actually save us quite a bit of money. This became especially true when my wife and I had our first baby.

One of these benefits is having access to a Health Care Flexible Spending Account.

This article will go over what allied health professionals need to know about having a Health Care Flexible Spending Account so that you too can maximize your bottom line.

Let’s get started.

WHAT IS A HEALTH CARE FLEXIBLE SPENDING ACCOUNT?

The Internal Revenue Service describes a Health Care Flexible Spending Account as a federal government program designed for employees to save money on taxes when paying for out-of-pocket expenses for certain approved healthcare-related expenses.

WHO CAN HAVE A HEALTH CARE FLEXIBLE SPENDING ACCOUNT?

An allied health employee can get access to this program if his or her employer sponsors the program.

If you are self-employed then you are not eligible for this program.

WHAT ARE THE TAX BENEFITS ASSOCIATED WITH USING A HEALTH CARE FLEXIBLE SPENDING ACCOUNT?

The money you receive from each paycheck is taxed for the following all before you even receive that money:

  1. Federal income tax
  2. Federal payroll tax
  3. State income tax
  4. State payroll tax (using California as an example)

Federal payroll taxes include MedFICA, for Medicare, and FICA, for Social Security.

The amount of tax incurred for Social Security depends on your income. If you make less than or equal to what is known as the “wage base,” which for 2021 is $142,800, then 6.2 percent of your paycheck does to Social Security. If you make more than the wage base, though, you still only pay 6.2 percent of the wage base value.

The amount of tax paid to Medicare is a flat tax of 1.45 percent of your paycheck along with an additional 0.9 percent if you fall into one of the following categories:

  1. If you file single and your income is greater than $200,000 per year
  2. If you file married and jointly if your income is greater than $250,000
  3. If you file married and separately if your income is greater than $125,000

Adding these up, you can start to feel your paycheck slipping through your fingers before you even have a chance to spend it – and don’t forgot about federal income tax and, depending on where you live, state income taxes too! If you’re not sure about your state tax rate, you can click here to learn more by using the Tax Foundation’s interactive map of the United States.

The good news is that the money placed into a Health Care Flexible Spending Account is known as pre-tax because it is pulled from your paycheck before these taxes can reduce its value. This give your money greater value for payment of eligible expenses. This is a major benefit of the Health Care Flexible Spending Account program.

In addition, the money pulled from your paycheck and placed into your Health Care Flexible Spending Account is not counted as part of your income when determining how much state and federal income taxes you will owe.

Finally, the money taken out of your Health Care Flexible Spending Account and spent on eligible medical expenses will not be taxed.

HOW DO YOU CONTRIBUTE TO A HEALTH CARE FLEXIBLE SAVINGS ACCOUNT?

To use a Health Care Flexible Savings Account for out-of-pocket medical expenses, you will first want to contribute to the Health Care Flexible Savings Account sponsored by your employer.

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To make a contribution to your Heath Care Flexible Savings Account, you must designate a specified amount of money to be taken pre-tax directly from your paycheck and placed into your Health Care Flexible Savings Account.

WHEN CAN YOU CONTRIBUTE TO YOUR HEALTH CARE FLEXIBLE SPENDING ACCOUNT?

The Internal Revenue Service states that, typically, you can only designate ongoing contributions contribute to your Health Care Flexible Spending Account at the beginning of the plan year – otherwise known as Open Enrollment.

However, the Federal Flexible Spending Account Program’s website explains that if you experience a “change in status or other qualified event” then you must notify them during a window of up to 31 days before your life event occurs and no more than 60 days after your life event occurs to make changes to your Health Care Flexible Spending Account.

A qualified event includes:

  1. Marriage, divorce, or spouse passing away
  2. Birth/adoption/death of a dependent such as a child
  3. Change in the employment status of you, your spouse or your dependent
  4. A change in residency for you, your spouse or your dependent
  5. A change in your ability to meet the eligibility requirements

In addition to the window of time noted above for notification of a life event occurring, the change you desire to make in relation to a Health Care Flexible Spending Account must make sense given your life event. The Federal Flexible Spending Account Program’s Qualifying Life Events Quick Reference Guide provides additional information should you need it.

HOW MUCH MONEY CAN YOU PUT INTO A HEALTH CARE FLEXIBLE SPENDING ACCOUNT?

Federal Flexible Spending Account Program’s website explains that the least you can annually contribute to a Health Care Flexible Spending Account is $100 and the most is $2,750. These annual values are contributed in smaller installments each paycheck.

They key here is that this maximum limit is per individual.

Therefore, as the website operated by the U.S. Centers for Medicare and Medicaid Services explains, if you and your spouse were each working and you each had a Health Care Flexible Spending Account, you can each contribute up to $2,750 into your respective Health Care Flexible Spending Accounts. 

Health Care Spending Account Contribution Limits

CAN YOUR EMPLOYER CONTRIBUTE TO YOUR HEALTH CARE FLEXIBLE SPENDING ACCOUNT?

According to the Internal Revenue Service, your employer may also make contributions to your Health Care Flexible Spending Account. Additionally, your employer’s contributions will not count as part of the $2,750 cap.

However, your employer is by no means required to make such a contribution.

HOW DO YOU GET REIMBURSED FOR YOUR EXPENSES?

The U.S. Centers for Medicare and Medicaid Services describes how you must first provide proof that you spent out-of-pocket money on a qualified medical expense. This can be done by submitting a claim. Once your claim is received and processed, you will then be reimbursed for your approved expense.

Be sure to keep the receipts of all purchases for which you plan on submitting claims. In addition, the Federal Flexible Spending Account Program requires that each receipt also include the following information:

  1. Your name as purchaser of the qualified medical expense
  2. The name of the merchant selling you the qualified medical expense
  3. The date this transaction occurred
  4. How much money you spent on the qualified medical expense
  5. What the qualified medical expense is

For insurance deductibles and copays, you may also want to include a copy of the physician’s bill and a copy of the insurance company’s Explanation of Benefits showing what portion your health insurance already paid and what portion was your responsibility to pay out-of-pocket.

The Federal Flexible Spending Account Program also explains you may be asked to submit a Letter of Medical Necessity as well. This templated form is typically requested for medical expenses that fall into more of a gray area in regards to be considered a qualified medical expense.

This begs the question: “What medical expenses are considered qualified medical expenses?”

HOW CAN YOU DETERMINE WHICH EXPENSES ARE ELIGIBLE FOR A HEALTH CARE FLEXIBLE SPENDING ACCOUNT REIMBURSEMENT?

The Federal Flexible Spending Account Program website explains that the Internal Revenue Service determines which medical expenses are considered qualified medical expenses.

However, the Federal Flexible Spending Account Program maintains an exhaustive list, which you can access here, of eligible, possibly eligible, and non-eligible expenses. I highly recommend that you become familiar with this website. Simply click on the link I provided, click on Health Care FSA, and then type in whichever medical expense you would like to find out may or may not be considered an eligible expense.

If an expense is considered eligible, a green check mark under the Eligible column will appears. For example, you can see this when I search for physical therapy.

However, if Botox is typed into the search bar, a yellow warning sign can be found under the eligibility column along with a document symbol next to it indicating a Letter of Medical Necessity may additionally be required.

Finally, marriage counseling is searched for, a red X symbol appears in the eligibility column indicating that this will not be considered a qualifying medical expense.

To help you even further realize which of your medical expenses might qualify, let’s cover a few more common ones.

WHAT ARE SOME COMMON ELIGIBLE EXPENSES FOR HEALTH CARE FLEXIBLE SPENDING ACCOUNT REIMBURSEMENT?

Co-Payments and Insurance Deductibles:

You can use your Health Care Flexible Spending Account to pay for your deductibles. These can include dental, medical, prescription and vision-related co-payments and deductibles.

Dental Expenses:

A full list of dental eligible, possibly eligible and non-eligible expenses can be found here.

Some of the notable eligible dental expenses include dentures, implants and even Invisalign.

Orthodontics:

Paying for orthodontics using your Health Care Flexible Spending Account is actually a special circumstance. That’s because the Federal Flexible Spending Account Program recognizes that some patients pay on a monthly basis while others pay in full and the number and frequency of visits varies.

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If opting to pay for orthodontia in full, this large amount can end up exceeding the $2,750 maximum you are allowed to contribute to your Health Care Flexible Spending Account. Therefore, the Federal Flexible Spending Account Program allows you to pay the amount you are able to using your Health Care Flexible Spending Account during that year and then pay the remainder of that balance you’re your Health Care Flexible Spending Account the following year.

For example, if an occupational therapist by the name of Sally owed her orthodontist $3,000, she could pay the orthodontist $2,750 from her Health Care Flexible Spending Account that year and then pay the remainder of that balance with her Health Care Flexible Spending Account the following year.

The Federal Flexible Spending Account Program provides a great detail on eligible and non-eligible orthodontia expenses, so be sure to read more about this here if this is an area that pertains to you.

Vision Expenses:

Paying for my vision expenses was actually how I initially discovered the importance of using my Health Care Flexible Spending Account. The cost of prescription glasses, contact lenses, contact lens solution, eye drops, and regular eye exams can add up very quickly. Fortunately, these are all considered eligible expenses.

Of note, Lasik is also considered an eligible expense.

Other Healthcare Treatments:

Sometimes a physical therapist needs to get physical therapy for themselves. Or acupuncture. Or massage therapy.

These are all qualified medical expenses that can be covered for the portion that is in excess of what health insurance will cover.

Medications:

All medication, whether prescription or over-the-counter, are currently considered eligible expenses. This is accordance with Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which went into effect March 2020.

Prior to the CARES Act, over-the-counter medication required a prescription from a physician to be considered an eligible expense.

Personal Health:

The CARES Act allows menstrual care products to be eligible.

Parenthood:

Don’t want to have a baby right now?

Birth control and condoms are eligible expenses.

Trying to have a baby?

Items like pregnancy tests and fertility treatment are eligible expenses.

Already have your baby?

A breast pump, lactation supplies, breast feeding classes, and lactation supplies. Childbirth classes and Lamaze classes are included as well, but only the cost for the mother is considered eligible.

All done having babies?

A vasectomy is an eligible procedure.

Mileage and Parking:

You can get reimbursed using your Health Care Flexible Spending Account for mileage to and from a destination at which you receive a medical service. The reimbursement is $0.16 per mile.

You can also receive reimbursement for the cost of parking when being seen for a medical appointment.

The Federal Flexible Spending Account Program requires that you document both your mileage and fees for parking by filling out a templated worksheet referred to as a Mileage Worksheet, which you can access here.

WHAT ARE SOME COMMON NON-ELIGIBLE EXPENSES FOR HEALTH CARE FLEXIBLE SPENDING ACCOUNT REIMBURSEMENT?

Before mentioning specific non-eligible expenses, it is important to understand a couple of larger concepts.

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First, except for orthodontia as previously covered, it doesn’t matter if the expense is typically considered eligible or not – you cannot receive reimbursement for that expense if it did not occur during your coverage period.

Second, you cannot receive reimbursement for a payment for a good or service with anticipation of receiving that good or service sometime in the future. The exception to this rule, as covered above, is for orthodontia.  

Now, here are a few examples of common non-eligible expenses:

Insurance Premiums:

You cannot use your Health Care Flexible Spending Account to pay for your insurance premiums.

General Dietary Health:

Items that are still not considered eligible expenses include vitamins and supplements.

General Dental Health:

Dental products for general health are not eligible. These include toothbrushes, toothpaste, and floss.

General Fitness Health:

Gym memberships are typically not considered eligible expenses. However, they can be if supported by a physician with a Letter of Medical Necessity for a certain medical condition.

General Home Health:

Cleaning supplies are not eligible expenses.

While several expenses you’ll incur when having a baby are eligible, many are not. Some of these expenses ineligible expenses include maternity clothes, a diaper service, a car seat and a crib.

Items such as diapers, baby formula, and use of a doula are only considered eligible under certain circumstances with extra documentation provided.

WHO CAN THE MONEY IN A HEALTH CARE FLEXIBLE SPENDING ACCOUNT PAY FOR?

The money in your Health Care Flexible Spending Account does not have to all be spent on just you. You can also spend the money on your spouse and dependents even if they are not on your health insurance.

According to the Internal Revenue Service, qualifying dependents include your child who

  1. Is under 27 years of age who
  2. Earned a gross income of less than $4,300
  3. Is not listed as a dependent on someone else’s tax return
  4. Did not file their own joint tax return

CAN MONEY IN A HEALTH CARE FLEXIBLE SPENDING ACCOUNT BE ROLLED OVER?

In short, yes it can. But just like the answer to most questions in school, it depends.

When your employer offers the opportunity to participate in a Health Care Flexible Spending Account, they also have the option to provide one of these two opportunities:

  1. Roll over up to $550 from one benefit period’s Health Care Flexible Spending Account to the next benefit period’s Health Care Flexible Spending Account
  2. Have 2.5 additional months at the beginning of the next benefit period to continue using up the remaining balance of your Health Care Flexible Spending Account from the previous benefit period

However, your employer doesn’t have to offer either of the above options. If they do, though, then they can only offer one of the two. Be sure to check with your employer if they do offer you one of these options.

Having either of these additional options can be quite helpful, since otherwise you lose any unspent money remaining in your Health Care Flexible Spending Account at the end of the benefit period.

Fortunately, due to the Consolidated Appropriations Act of 2021 which is succinctly summarize by the state of Georgia’s Department of Administrative Services, the IRS stated that Health Care Flexible Spending Account balances remaining at the end of year 2021 can be carried over in full to the end of year 2022.

FINAL THOUGHTS. . .

Overall, a Health Care Flexible Spending Account can provide an allied health professional with excellent tax benefits related to health care costs for you, your spouse and your children. Be sure to take advantage of it if you your employer provides you with the opportunity.

While doing so, be aware of which medical expenses are actually covered, find out from your employer if a roll over or grace period option is available, and keep track of your account balance to avoid losing money at the end of the year.

Do you have any additional information to share on the Health Care Flexible Spending Account? Any questions on aspects that may not have been covered? Before moving on, please help make the Money Mobilizer a supportive and welcoming community for our current and future colleagues by leaving a question or sharing your knowledge below! 

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