A flexible spending account (FSA) lets you save money for important expenses without paying taxes on it. These accounts can save you hundreds of dollars in taxes, but they often require a lot of paperwork to prove that you bought the "qualifying" product or service. FSA debit cards are fairly new to the market. They make getting an FSA easier and quicker than it used to be. Now that you don't have to keep track of, copy, and send in all your proof of purchases and receipts, you can just sit back and enjoy your lower tax bill.
First, some history. Most flexible spending accounts fall into three main categories:
- The person who needs care FSA, which lets you save money for qualified child care costs like day care or after-school care. Even though they are usually used for children, they can also be used for "adult day care" for elderly people who live with you, such as parents.
- The Health Care FSA, which is also called the Medical FSA, the Medical Expense FSA, or just the Health FSA. This is a savings account for qualified medical costs. These can include insurance deductibles, co-payments, and co-insurance costs, as well as specific products, treatments, and medications that aren't covered by insurance. Medical problems can be very serious or as simple as buying enough band-aids to last a year.
- The travel FSA, which lets you save money before taxes for costs like public transportation, tolls, and parking.
In each case, the money you set aside is subtracted from your income, and you only pay taxes on the amount that is left over. At http://www.flexiblespendingaccounts.info, you can find out more about how to figure out your own tax savings.
People used to avoid FSAs because of all the paperwork that came with them. You had to keep and turn in a lot of paperwork, such as bills, receipts, and itemised statements. But the FSA Debit Card is a new product that makes things much easier, smoother, and less paper-intensive. After you sign up for an FSA account, you can use these credit cards to pay for any of the above costs. You carry your FSA Debit card with you, and you use it to pay for anything that qualifies as a qualified expense in an FSA you have joined, such as day care, medical supplies, or parking. You are spending your own money that you put aside from your earnings for the FSA.
There are more than 7 million debit cards that are linked to an FSA account right now. Almost a third of the people who have FSAs are involved in this. It is expected that this rate will go up to 85% by 2010. If you don't use a debit card, you will need to show proof of payment for qualified expenses, like receipts, bills, or statements. In many cases, you may still have to do that, since you may have to pay some bills to places that don't accept debit cards.
When you sign up for an FSA and use your FSA Debit Card, there are two very important rules you should know. Most importantly, all of the money set aside must be spent within the "plan year," which is usually the calendar year (sometimes with a 90-day grace period) but can be the fiscal year for some companies. At the end of the "plan year," any money left in the account goes back to the company. Before you sign up for an FSA plan or use your debit card, you should always look at the full list of what's covered, what's not covered, and the rules. You might have to pay back the company if you use it in a way that isn't allowed by the FSA agreement.
