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Health Care Savings Accounts

Saving

Flexible Spending Account (FSA)

A FSA is setup through a cafeteria plan by an employer. Similar to an HSA, or Health Savings Account, an FSA allows an employee to automatically deduct an agreed amount from their gross wages (pre-tax) and deposit it to a special savings account to use for qualified expenses. When the employee pays out of pocket for a qualifed expense, the member could request a reimbursement for that expense. Some plans have a FlexCard, similar to a debit card, which allows the employee to pay for qualifed expenses directly from their FSA. The benefit of having the money set aside pre-taxed really helps out in lowering taxable income.

There are several types of FSAs. An employee can enroll in as many types of FSAs as the employer allows through a cafeteria plan. Most common types of FSAs reimburse medical expenses and dependent care. It is really important to figure out how much you spend each year on these type of expenses before committing to amounts deducted from your paycheck and deposited into your FSA. If you do not use all the money in your FSA within a year it will disappear. Also, money cannot be transferred between your accounts. So if you don't use it, you lose it.

For Dependent Care, qualified expenses may include childcare for children under the age of 13 and adult day care for elderly dependents. Summer camps for children are not included unless they are considered "day camps". The United States Government caps the maximum deposit amount for dependent care at $5,000 per year.

For Medical Expenses, some qualified medical and dental expenses are listed below. Companies may limit their employees to what they can contribute in one year. This prevents the company from losing too much money if the employee is let go before the end of the enrollment year.

Health Savings Account (HSA)

A HSA is a special savings account available to United States taxpayers who are enrolled in a High Deductible Health (HDHP) Plan. Money that you contribute to the HSA is not subject to federal income tax at the time of deposit. If money is still in the HSA at the end of the year, it remains in the account and continues to accumulate. The money saved in the HSA should only be used for qualified medical and dental expenses. Some of the qualified medical and dental expenses are listed below. Money withdrawn for any reason other than to pay for a qualified medical and dental expense would incur penalties and taxes on the amount you withdrew from the account.

Qualified Medical and Dental Expenses

Qualified Medical and Dental Expenses are outlined in the Internal Revenue Service Publication 502, titled "Medical and Dental Expenses" As of 2009, qualified expenses may include:

  • Legal Abortions
  • Acupuncture
  • Alcoholism (inpatient treatment, meals, and lodging; transportation to/from Alcoholics Anonymous meetings)
  • Ambulance
  • Annual Physical Examination
  • Artificial Limb
  • Artificial Teeth
  • Autoette (Wheelchair)
  • Bandages
  • Birth Control Pills
  • Body Scan
  • Braille Books and Magazines
  • Breast Reconstruction Surgery (following mastectomy for cancer)
  • Capital Expenses (when catering to the special needs of a disabled person in your care)
  • Car Modifications (when catering to the special needs of a disabled person in your care)
  • Chiropractor
  • Christian Science Practitioner
  • Contact Lenses
  • Crutches
  • Dental Treatment (not Teeth Whitening)
  • Diagnostic Devices
  • Disabled Dependent Care Expenses (Medical Expenses or Work-Related Expense)
  • Drug Addiction (inpatient treatment, meals, and lodging)
  • Drugs (Medicines)
  • Eyeglasses
  • Eye Surgery
  • Fertility Enhancement
  • Founder's Fee (Lifetime Care - Advance Payments)
  • Guide Dog or Other Service Animal (Buying, training, and maintaining a dog to assist a someone who is visually or hearing impaired)
  • Health Institute
  • Health Maintenance Organization - HMO (Insurance Premiums that are paid from your wages.)
  • Hearing Aids
  • Home Care (Nursing Services)
  • Home Improvements (Capital Expenses)
  • Hospital (Services, Meals, and Lodging)
  • Insurance Premiums (that are paid from your wages and pertain to medical and dental care)
  • Home for an Intellectually and Developmentally Disabled person (on the recommendation of a psychiatrist and in transition from a mental hospital to community living)
  • Laboratory Fees
  • Lead-Based Paint Removal (in the interest of a child)
  • Learning Disability (Special Education)
  • Legal Fees (necessary for medical care)
  • Lifetime Care - Advance Payments (a monthly fee you may pay for holding a room for you at a retirement home or a monthly fee you may pay for a disabled child to be housed in the case of your death)
  • Lodging (meals and lodging at a hospital or nursing home)
  • Long-Term Care
  • Long-Term Care Contracts (a type of insurance)
  • Meals (meals during inpatient care)
  • Medical Conferences (admission and transportation to a conference that is concentrated on a chronic illness that either you, your spouse, or a dependent have developed.)
  • Medical Information Plan (a plan that you pay to have your information retained in a computer database for a doctor's retrieval)
  • Medicines (prescribed)
  • Nursing Home
  • Nursing Services
  • Operations
  • Optometrist
  • Organ Donors (See Transplants)
  • Osteopath
  • Oxygen
  • Physical Examination by a Physician
  • Pregnancy Test Kit
  • Prosthesis (See Artificial Limb)
  • Psychoanalysis
  • Psychologist
  • Special Education
  • Sterilization
  • Stop-Smoking Program
  • Surgery (See Operations)
  • Telephone (special equipment like a Telephone Typewriter - TTY)
  • Therapy
  • Transplants
  • Transportation (to receive medical care by bus, tax, train, plane fares, ambulance service, parent who drives child to receive medical care, or a nurse's transportation to you)
  • Tuition (for Special Education)
  • Vasectomy
  • Vision Correction Surgery
  • Weight-Loss Program
  • Wheelchair
  • Wig (if you have lost your hair from disease)
  • X-ray

Non-qualified expenses include:

  • Baby sitting
  • chidcare and nursing (for a normal, healthy baby)
  • Controlled substances in violation of federal law
  • Cosmetic surgery
  • Dancing lessons
  • Diaper Service
  • Electrolysis or Hair Removal
  • Funeral Expenses
  • Future Medical Care
  • Hair Transplant
  • Health Club Dues
  • Health Coverage Tax Credit
  • Household Help
  • Illegal Operations and Treatments
  • Insurance Premiums (that are not paid from your wages)
  • Maternity Clothes
  • Medicines (over-the-counter "OTC")
  • Medicines and Drugs from Other Countries
  • Nutritional Supplements (Vitamins)
  • Personal Use Items (toothbrush, toothpaste)
  • Swimming Lessons
  • Teeth Whitening
  • Veterinary Fees
  • Weight-Loss Programs