A Health Flexible Spending Account (FSA), also known as a Health Flexible Spending Arrangement, is a type of traditional fringe benefit offered by many employers to their employees. It is one of several programs designed to provide individuals with tax advantages to help offset their healthcare costs.
A Health FSA allows eligible individuals to set aside pre-tax dollars from their salary to pay for qualified medical expenses. These contributions are not included in the individual's taxable income, which means they reduce the individual's overall tax liability. Additionally, reimbursements from a Health FSA that are used to cover qualified medical expenses are not subject to taxation.
So what’s typically eligible with FSAs? You may be surprised to find out!
Sunscreen
Sunscreen can be considered a qualified medical expense if it's used to prevent sun-related health issues, such as skin cancer or sunburn. A Letter of Medical Necessity (LMN) from your doctor or medical practitioner may be needed. More on LMNs in our FAQ section!
Monthly period supplies
The list of eligible menstrual hygiene products includes (but is not limited to) items like pads, tampons, panty liners, menstrual cups, and period panties. The inclusion of menstrual products as qualified expenses (effective Jan. 1, 2020) acknowledges the healthcare needs of individuals and helps address gender equity issues.
Baby monitor
A baby monitor can potentially qualify as a medical device and be eligible for reimbursement if it's used to monitor a child's medical condition or safety.
Humidifier
A humidifier might be used for medical reasons, such as to alleviate respiratory issues or dry skin, justifying its eligibility.
Pregnancy tests
FSAs can support reproductive health. Pregnancy tests fall under the same umbrella as condoms and fertility kits, which are all eligible for FSA reimbursement.
Thermometers
Thermometers are crucial for monitoring health, especially in cases of fever or other illnesses.
Breast pump
Breastfeeding storage, products, and supplies are FSA-eligible if they are used for medical assistance with breastfeeding, such as to address lactation issues.
Blood pressure monitor
Monitoring blood pressure is important for managing various medical conditions.
Contact lenses
Contact lenses may appear to be cosmetic care items, however, often contact lenses are used for medical reasons, such as vision correction. When this is the case, they’re FSA eligible!
Foot massager
A foot massager might be considered eligible if used for medical purposes, such as relieving pain from certain conditions.
Travel (neck) pillows
These can be eligible if a medical condition necessitates their use during travel.
Prescription sunglasses
Prescription sunglasses are eligible when they are prescribed to address a specific vision issue.
PPE (hand sanitizer, masks, sanitizing wipes)
The inclusion of PPE is a response to public health needs, acknowledging their role in preventing illness.
Over-the-counter (OTC) medications
These can be surprising since they were typically excluded prior to recent changes. A LMN may be required to justify medical necessity.
The IRS defines qualified medical expenses as amounts paid for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.” Qualified medical expenses are eligible for reimbursement through your FSA as long as they are not reimbursed through insurance or any other source.
For more information, check out these helpful IRS resources:IRS website.
IRS PDF: Health Savings Accounts and Other Tax-Favored Health Plans (Publication 969)
Examples of Items Not Traditionally Covered by an FSA
Below are a couple of examples of items that are generally not eligible for FSA reimbursement. One rule of thumb is if a product or service has the primary purpose of preventing, treating, or curing, or diagnosing a specific medical condition then it’s likely FSA eligible. As always, check with your FSA administrator or HR department to confirm:
Toiletries
Items like soap, shampoo, and other personal care products typically used for general hygiene purposes are considered non-eligible expenses.
Diapers
Diapers, both for infants and adults, are usually not eligible for FSA reimbursement, as they are primarily used for routine daily care.
Gym Memberships
While certain fitness-related expenses might be eligible with a LMN, regular gym memberships for general fitness purposes are usually not eligible.
Daily Care Products
Items such as Vaseline petroleum jelly, toothpaste, and deodorants are generally considered ineligible for FSA reimbursement, as they are commonly used for routine personal care.
Health Insurance Premiums
FSA funds cannot be used to pay for health insurance premiums, as these are separate from out-of-pocket medical expenses.
It's important to note that the eligibility of expenses can vary based on specific circumstances and changes in regulations. Always refer to IRS guidelines and your FSA administrator for the most up-to-date information regarding eligible and non-eligible expenses.
How Does an FSA Work Exactly?
An FSA can be established by an eligible individual or by an employer who chooses to contribute to their employees' FSA. It provides a way for folks to pay for various qualified medical expenses such as doctor's visits, prescription medications, dental care, vision care, and other eligible healthcare expenses (always check with your plan provider to confirm care is covered). This can be particularly helpful for individuals who anticipate incurring substantial medical costs throughout the year.
However, it's important to note that Health FSA funds are subject to certain limitations. Typically, only a limited amount of FSA funds can be carried over from year to year. Employers often offer employees one of two options for handlingdealing with remaining FSA funds at the end of the year:
Grace Period: Some employers provide a grace period of up to 2.5 months (for example, until March 15th) following the end of the plan year. During this grace period, employees can use any remaining FSA funds from the previous year to pay for eligible expenses incurred within that period.
Rollover: Alternatively, some employers allow participants to roll over a portion of their unused FSA funds to the following plan year. As of 2023, the maximum amount that can be rolled over is $610.
It's important to check with your FSA administrator or HR department to understand the specific rules and options your employer offers regarding the use of FSA funds and any carryover provisions. As the end of the year approaches, individuals may be seeking information about their FSA balance and how to best utilize their remaining funds to cover eligible expenses before any applicable deadlines.
FAQs on FSAs
Do FSA Rollovers Count Toward Next Year's Contribution Limits?
FSA rollovers do not count toward next year's contribution limits. When your FSA offers a rollover option, any unused funds from the previous year that are carried over into the new year do not affect your annual contribution limit for that new year. This can provide a helpful way to manage your healthcare expenses more flexibly.
Can You Take FSA Dollars With You If You Leave Your Job?
Generally, you cannot take FSA dollars with you if you leave your job. FSA funds are typically tied to your current employer's plan and are meant to be used within the plan year or an applicable grace period. However, if you change jobs and your new employer offers a compatible FSA plan, you can contribute and use FSA dollars with the new employer.
What Happens If I Try to Spend My FSA on Ineligible Items?
If you attempt to spend your FSA on ineligible items, you may face consequences such as having to repay those funds or potential tax penalties. It's crucial to adhere to the IRS guidelines for qualified medical expenses to ensure that you use your FSA funds appropriately.
What Is a Letter of Medical Necessity (LMN) and Do I Need It Every Time I Want to Use My FSA?
A Letter of Medical Necessity (LMN) is a written statement from a medical professional that explains the medical need for a specific expense that might not immediately appear eligible. While not required for every FSA expense, an LMN can be necessary for certain items that might be considered unconventional medical expenses, such as gym memberships or weight management programs.
What's the Difference Between an FSA, HSA, and LSA?
FSAs (Flexible Spending Accounts), HSAs (Health Savings Accounts), and LSAs (Lifestyle Spending Accounts) are distinct types of accounts with different purposes and features.
FSA: Offered by employers and allows pre-tax contributions for eligible medical expenses.
HSA: Also employer-sponsored and pairs with a high-deductible health plan, offering long-term savings potential.
LSA: Like Fringe's solution, LSAs cover a broader range of lifestyle-related expenses beyond healthcare, providing additional flexibility in fund usage.
Create a free demo account and explore Fringe, an LSA solution. Engaging with the platform can help you better understand the benefits and possibilities of Lifestyle Spending Accounts.
Key Takeaways
FSAs are valuable tools that offer individuals the opportunity to allocate pre-tax funds for eligible medical expenses. From unexpected medical costs to routine health needs, FSAs provide financial flexibility and tax advantages. Remember that FSA rollovers do not affect your contribution limits for the following year, and while you can't typically take FSA dollars with you when you change jobs, you can utilize them with a new employer's compatible plan. It's crucial to adhere to the IRS guidelines for eligible expenses and understand the concept of a Letter of Medical Necessity (LMN) for certain cases. For a convenient shopping tip, use Amazon's search filters to find FSA-approved items. However, it's always wise to double-check with your FSA plan administrator to ensure your purchases are eligible. Your FSA can be a powerful ally in managing your healthcare costs, so make the most of it while staying informed about its intricacies. For items not covered by an FSA, check out Fringe's LSA solution.
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