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How Flex Funds Work


Uses for Flex Spending
Flex funds can be used to pay for prosthetics not covered by insurance.
Flex funds can be used to pay for prosthetics not covered by insurance.
Ramzi Haidar/AFP/Getty Images

It's pretty easy to open an FSA. But it does require some management. You need to pay attention to how much money you have left to spend throughout the year. You also need proof that the money was spent and that it was spent on qualifying expenses. The eligibility of expenses is based on the type of expense and the type of flexible spending account you set up.

There are many ways to use flex spending; most people can probably find several eligible expenses among their routine expenditures.

Health Care FSA: All expenses must be health-related. Cosmetic procedures such as liposuction, tooth whitening and hair transplants are not covered. Some procedures that are covered:

  • chiropractic services
  • braces for yourself or your dependents
  • insurance co-pays and fees not covered under insurance
  • dental and vision care not covered under insurance
  • maternity providers, including doulas and midwives not covered by insurance
  • infertility treatments and providers not covered by insurance
  • certain over-the-counter medications and products
  • psychiatric care
  • prosthetics

Dependent Care FSA: This account is used for reimbursement of expenses related to child or adult care while you're working or looking for work (or while your spouse is a full-time student). These expenses do not include education or tuition fees. Covered expenses include:

  • day care for qualifying dependents. A qualifying dependent is a child under the age of 13 or an older child or adult who is physically or mentally incapable of self-care. Note, however, that the person providing day care must not be your dependent -- so you can't deduct the cost of paying your older child to babysit your younger child.
  • day camps and other activities that allow the employee to work
  • fees for a housekeeper who also provides childcare

Be sure to check with your employer before ruling an expense ineligible. A great tool to determine eligibility is the eligible expenses jukebox [source: FSA Feds]. Finally, IRS Publications 502 and 503 offer extensive lists of what you can and cannot pay for with FSAs [source: IRS]. If you think an expense you have should be covered under your FSA, but it is denied, you can file an appeal. For more information on appeals, contact your employer.

Flexible spending accounts have rules and guidelines, but they can be managed pretty easily. The tax advantages make the accounts well worth the accompanying paperwork. Using pre-tax income to cover medical expenses helps you save more of your paycheck for yourself and your family. And that makes it much easier to keep up the good work.

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