Get Ready for the New Flexible Spending Account Rules

The coming year, 2013, is likely to offer a few changes to many of us. Among the biggest changes, at least for those who rely on flexible spending accounts to help with health care costs, is the new cap on the amount you contribute.

What is a FSA?

A flexible spending account (FSA) is an account that you set up with your employer. You have money deducted from your paycheck and held in the account. The money builds up, and you can use it for qualified out of pocket healthcare expenses, including co-pays.

The money that goes into your FSA is taken out pre-tax, so it reduces the amount of your taxable income. This can help you reduce your tax liability, while giving you a way to save up for health care costs.

The biggest drawback to the FSA is the fact that you have to use all of the money you contribute each year, or you lose it. This is why so many workers arrange for doctor appointments and dentist appointments at the end of the year. Many also opt for expensive procedures, like Lasik for their eyes, if they have a large accumulation in their accounts.

What Flexible Spending Account Rules ChangeĀ in 2013?

The big difference for 2013 is that the Patient Protection and Affordable Care Act (PPACA – also called Obamacare) requires a cap on FSA contributions. So you can only contribute up to $2,500 starting in 2013. In the past, there was no cap on contributions set by law, although many employers set their own caps. The in many cases, the employer-set cap was around $5,000.

If you are one of those who have been taking full advantage of the FSA offered by your employer, you might see the amount you can contribute to your FSA reduced by quite a bit.

You can get around this if you meet certain conditions. The FSA is determined by employer and by employee. So, if you work two different jobs, and each employer has its own FSA, you can contribute up to $2,500 in each FSA. This can boost your ability to contribute. Additionally, if you have a partner, each of you can have your own FSA, even if you work for the same company. So each of you can contribute up to $2,500 to your own FSAs, bringing your household contribution up to $5,000

One of the more interesting changes being contemplated for FSA accounts is getting rid of the use it or lose it requirement. This is still up for debate, though, and until the law is changed, you still have to use up your contributions each year or lose the money you have set aside. But it would be nice if the money in the FSA would roll over from year to year, like the money in a Health Savings Account does.

Look at your financial situation, and consider your options. Prepare for the new FSA rules that are coming. Stay on top of things and plan your finances accordingly, and you’ll be able to make the most of whatever situation you find yourself in with your finances.

Written by Tom

Tom Drake writes for Stupid Cents and Canadian Finance Blog. Whenever he's not working on his online endeavors, he's either doing his "real job" as a financial analyst or spending time with his wife and two boys.

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