Benefits From a Flexible Spending Account

Benefits From a Flexible Spending Account

Flexible spending accounts (FSA), or, cafeteria plans, offer employees a menu of services they pay on a pre-tax basis. Authorized under Section 125 of the Internal Revenue Code, cafeteria plans allow employees to set aside money throughout the year to use toward medical or dependent care expenses not covered by health insurance benefits, including co-payments and deductibles.

By setting aside money during the year for medical or dependent care services before taxes, employees are able to reduce their taxable income, which increases their take-home pay. Taxes are not paid on claims paid to employee from the account either.

When you sign up for a flexible spending account, it is important to know that the money deducted from your pay throughout the year must be used or they will lose it. Therefore, deducting too little is better than too much. A cafeteria plan is not a savings account – the funds do not build up year after year.

The federal government allows two types of spending accounts. One is for medical reimbursement and the other is for dependent care spending, whether it’s for child care or care for an elderly family member.

The IRS does not set limits on the amount of medical and dental expenses that can be reimbursed by a spending account, buy your plan may establish annual maximums. Be sure to check to find out what yours are.

When filing income taxes, you must complete the IRS Form 2441 if you participate in a dependent-care spending account. Dependent-care contributions are reported in Box 10 of the W-2 forms.

Sometimes your flexible spending account administrator will provide a worksheet to help you determine how much money you should set aside for medical and dependent care expenses. Here are some questions to ask yourself to help determine an amount:

  • How much did I spend in child care or care for an elderly parent last year? Are those costs expected to increase or decrease this year?
  • How much did I pay in co-payments this year for prescriptions and doctor’s visits?
  • Will I or someone in the family need eyeglasses or contacts this year?
  • Is it likely someone will need surgery?
  • What did my family spend last year in trips to emergency room?
  • Are there other expenses, like therapy, chiropractic treatment or orthodontia that someone in my family may need?
  • Do I have vision and dental benefits? What do they cover?

Be sure to review your health care plan before you finalize an amount to be paid into your  flexible spending accounts, even if you opt to stay with the same plan you had the year before. Co-payments may have increased or benefits reduced.

You can change the amount of allocations to your cafeteria plan if you have what the IRS calls a “qualifying event.” A qualifying event would include the birth or adoption of a child, death of a spouse or dependent, marriage, divorce or change your job status or that of your spouse. Most changes have to be made in writing within 31 days of the event.

Plan wisely when determining your cafeteria plan. Ask your benefits administrator if you have any questions.


  1. Can I have Medicare Part A and an FSA?

    • I will start Medicare next month. Can I still have a FSA to pay for eyeglasses , dental work etc ? It is for FSA not HSA

    • I have always been told you cannot contribute and use money in an FSA if you have Medicare part A and are still working. Now it seems that may not be true – what is the truth??

  2. You can use an FSA (Flexible Spending Account) to pay for Medicare plan copays, or for prescriptions or deductibles that are not covered by Medicare. You cannot use an FSA to pay for Medicare premiums or Medicare payments.

  3. I see Laurie’s comment above but would like a link to an IRS or Medicare policy that confirms that an FSA can be used to pay Medicare and Medicare Advantage plan copays and deductibles. Thanks!

  4. Can I submit reimbursement of my monthly Supplemental Medicare Plan payments to FSA? I only see issues dealing with Medicare Part A and B but not supplemental plans.

  5. If you are over age 65 can you still contribute to an FSA plan? We can no longer contribute to an HSA so I was concerned because our employer is encouraging us to contribute salary money to an FSA.

  6. Why can we not use FSA money for supplemental insurance premiums? Seems very unfair to seniors that when we are still working and have medicare premium expenses we cant deduct, but if we had our employers insurance we could deduct the premiums

  7. My company has an FSA Plan. I have to sign up for Medicare in the next month. Can I still keep my FSA plan and sign up for Medicare>

      • This is a useful document but does not spell out whether you can have an FSA with your employer coverage and also be signed up for Medicare (as your secondary.)

      • Can someone point out where in publication 969 (or other IRS source) it states whether or not you can have an FSA when you receive Medicare A (or other part) without tax or other repercussions?
        This is different from the question of what can you use an FSA for.

        • Did you get an answer to your question? It is my question too, and I don’t see the answer. Thanks

  8. This program sounds fantastic!! Thank you.

  9. If you have a qualified Health Care Plan with your employer and are drawing SS and are on medicare part A can you have a FSA to use for medical expenses


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