It was open enrollment at my place of employment last month. Back in the old days the husband was the one that typically carried the insurance for the family. Things are changing now that more women are working. Or rather things are changing in my family. Because I also work outside the home we are able to weigh our insurance options.
This year The King and I decided we would look into what both of our employers offered as far as insurance went and make the needed changes. This meant that we had to find out what our current insurance plans were and what other ones were offered. It was uber easy to do, thanks to the glorious internet. I was able to hop onto my company’s employee website and quickly view what our current status was. I was also able to download all the information on the other insurance plans, as well as information on flexible spending accounts (FSA), something we’d never look into before.
I had heard the term FSA thrown around in my life, but was never 100% sure what it meant. After doing a little research I found that a FSA “allows an employee to set aside a portion of her earnings to pay for qualified expenses, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee’s pay into an FSA is not subject to payroll taxes resulting in a substantial payroll tax savings”. (Thanks Wikipedia!) Dude, I can use my FSA to pay for daycare for my Sweet Babboo. Since we already know that daycare costs are already going up, The King and I figured that 2008 would be the perfect year for us to start using FSA.
Researching what my FSA options were with my company I found that there was a ceiling on how much I could put into my FSA account. While it was much lower then I knew we’d spend on daycare for next year, we still decided to take full advantage.
And so we signed up for FSA. We’ll figure out the finer points on how it all works next week when it goes into effect.
We also found that, if by some chance, I were to get pregnant next year we would have the option to opt for the higher insurance plan. While we don’t need this plan now, we might next year. I’m just saying.
So we did FSA for daycare. We didn’t even think about doing it for medical expenses. Mostly because we’ve never had any looming medical expenses to pay.
That is until I visited the dentist yesterday and was told I’d be needed a double crown in the next month due to a cracked tooth. And another crown in the next few years. Sweet. Out of pocket we’re looking at more money then I had planned on spending on my teeth for the next few years. When I called The King to break the news to him he was all “well, we’ll just put more money in the FSA account.” Yeah, we’ve already passed the open enrollment time for 2008.
We lost our chance.
Oh well, at least we can use it for daycare.
So tell me, if you’ve used FSA in the past, I’d love to hear what you have to say about it. Both good and bad.
Isabel is a pseudonym for this Seattle-based blogger. She’s been working since the day she realized soda and lip gloss weren’t free. Isabel became a mom in 2006 and continues to work full time, outside the home, since diapers and mortgages aren’t free either. You can read far too much about her personal life at hola,isabel.
If you have questions, anecdotes, or topics for “Double duty. One paycheck.”, email Isabel at holaisabel [at] gmail.com.
21 responses so far ↓
1 Deb - Mom of 3 Girls // Dec 5, 2007 at 8:13 am
We used it for daycare a few years ago. I thought it wasn’t terribly helpful due to the annoyance of paperwork - remembering to have our daycare provider sign receipts, remembering to turn in the forms, and living with smaller paychecks and still paying out for daycare until the reimbursement check came. And finding time to get to the bank to deposit it since my company didn’t reimburse through direct deposit. I don’t know how it affected us tax-wise, so we may have come out ahead there, but to me - it just was too much unnecessary hassle to deal with on top of everything else. Just my 2 cents!
2 Barbara // Dec 5, 2007 at 8:19 am
I’ve used the medical cafeteria plan option for several years now since it covers copays, dental appointments, eye appointments, new glasses or contacts, etc. If we have money left over at the end of the year I just get a new pair of glasses. Doesn’t happen very often.
Tax wise if you are taking out 5k and you are in a 20% bracket you are basically giving yourself a 1k raise. I know there is more to it than that, but it’s the quick and dirty example.
If you are able to take advantage of both daycare and medical it could be more.
3 Operation Pink Herring // Dec 5, 2007 at 9:19 am
I have never used FSA because I don’t feel like finding out how I would get reimbursed/use it, plus I don’t have any looming expenses (like daycare). I do have a fair share of medical bills and copays every year, but I am always afraid that the year I sign up for FSA I won’t have anything and I’ll be scrambling at the end of the year to “use it or lose it”. I think open enrollment just ended for us, but I’m going to look into the options and think about it next year.
4 Marsha // Dec 5, 2007 at 10:05 am
We looked at an FSA for child care, but decided against it for two reasons. The first is the cap, we would be paying way more then that. Also, by doing that you cannot get the tax credit for childcare. I prefer to use the benefit of the tax credit when I do my taxes.
5 Danielle // Dec 5, 2007 at 10:20 am
The good: More money in your pocket.
The bad: Yes it means more paperwork. But I already get receipts every month from daycare so once a month I fax off my receipt, and the next week, my reimbursement is direct deposited. Also, reimbursement for dependent care expenses is tricky. So even if you have elected the max contribution of $5K and even though you have incurred $5K in expenses by May, you won’t get all your money back until Dec. (It is not that way for health care FSA).
For me, the good outweighs the bad. (FWIW, I also elect to set aside some money in the health care FSA too. Pays for my copays, deductible, and contacts. And if I have any money left at the end of the year, I stock up on contact lens solution at costco).
Ok - I will end the longest comment ever now.
6 Nic // Dec 5, 2007 at 10:25 am
As you know, I don’t have to worry about dependent care, but I do use my FSA for medical expenses. Actually, amount I contributed over the year covers just over half of my copay on my root canal and crown. Lovely.
7 Danielle // Dec 5, 2007 at 10:42 am
I’m back - I just read Marsha’s comment.
I’m not an accountant, but I know that you are limited to a max deduction of $5,000 on your taxes even if you incur more than that in one year.
The FSA just allows you to receive that tax free benefit in the year that you incur the expenses rather than waiting until the following April when you file your taxes.
I like to keep any money I can away from the IRS and do with it as I please, rather than giving them an interest free loan with my money.
OK I’ll l leave now.
8 CPA Mom and Soccer Mom Angela // Dec 5, 2007 at 12:11 pm
I use the FSA for both.
It urks me that the cap on dependent care is $5,000 when I meet that by April (two kids) and it takes the whole year to “get it back.”
The FSA Medical we always use up well before year end too because we always underestimate expenses - because of the use it or lose it rule. Though there has been some noise in Congress about allowing unused money to go to your 401(k), I’m not holding my breath.
I’d like to comment on the comments above too. While it’s true that if you use all $5,000 on the FSA plan, you lose your credit on your tax return, it is a much better deal for you. The $5,000 you are getting back dollar for dollar and saving Federal (and state for those of you in states with income tax) and FICA tax on that money since it comes out of your check pre-tax. The credit? Is only $3,000 max and you lose it in increments as your income level rises over $15k. Ask your tax professional….the FSA is a better deal.
9 Denise // Dec 5, 2007 at 12:28 pm
I’ve done the Dependent Care FSA since my oldest hit daycare. This coming year will be the first time we do the Medical FSA as well, because our son started orthodontic treatment. Since it’s a set, defined monthly cost, I’m sure we’ll use it.
The scariest part about FSAs is the “use it or lose it” aspect. However, they do allow you to change your deduction in some very limited circumstances–when I went on an extended maternity leave for my daughter’s birth, I was allowed to stop the Dependent Care deduction, since I wasn’t making any $$ to deduct from, and my son wasn’t attending daycare.
10 An Ordinary Mom // Dec 5, 2007 at 7:23 pm
When I used to teach, I loved using my FSA for medical expenses. You just have to make sure you estimates your expenses well because if you don’t use all the money, it just disappears … at least it did back in the day.
11 Eve Good // Dec 5, 2007 at 8:05 pm
I say get pregnant NOW so we can comiserate together!
12 Baby Dumpling's Dad // Dec 5, 2007 at 8:08 pm
I haven’t used FSA for daycare but I’ve been using it for medical and like most say use it or loose it. I didn’t have to worry much about paperwork because my insurance allowed the medical and FSA to be linked. Usually I got the check before the bill arrived. Because of the use it or loose it thing next year I decided to go with HSA.
13 Stephanie // Dec 6, 2007 at 9:22 am
I am not too familiar with FSA either. I guess it comes from growing up in a family with no insurance? Nice. This year I decided to put in $10 a month. I thought I could use it for the leftover costs from my birth control or maybe towards vision and dentist costs. Not that $10 a month is going to cover much at either place.
My gripe is that yes, vision and dental insurance are relatively inexpensive, but I would rather pay a little more a month to have better coverage. This is considering that I basically only get a discount on my vision and the dental covers such a small percentage of the expensive procedures. Boo.
Inusrance is so dang confusing. All I know is that if I die, my husband gets my salary times five. Lucky bastard.
14 Frema // Dec 6, 2007 at 10:26 am
I have a health savings account, so I don’t need an FSA, but dude, you can also totally use FSA funds for things like glasses, medications, etc. You get to decide how much you want to put in.
And yes, FSA money disappears at the end of the calendar year, but you can totally use it to stock up on things like aspirin, band-aids, and stuff like that.
15 Liza // Dec 6, 2007 at 10:46 am
FSAs are Da Bomb.
Those of you in the “infertility treatment” universe may be interested to know that sperm from a cryobank are a “qualified medical expense” under the FSA rules. Since they can cost anywhere from $200-500 per vial, paying for them pre-tax can be a huge savings. I assume donor eggs are too. Storage of the “frozen samples” is also an allowed expense.
This year, I paid for Lasik with my health care FSA. In 2006, I overestimated what I would need and wound up buying almost $800 worth of tylenol/rolaids/bandaids at 11pm on New Year’s Eve. (What do you mean, get a life?)
16 April // Dec 6, 2007 at 2:00 pm
I have used my FSA extensively - my place of work gives you a debit card, so you don’t even have to spend the money out-of-pocket. It is completely awesome, and I used the money to get some major dental work last year, and LASIK vision correction the year before that. I would highly recommend checking out how yours works - it may be as easy as handing your doctor a different debit card, like mine is!!
17 a happier girl // Dec 6, 2007 at 2:05 pm
I’m not an accountant but I took several income tax related classes in law school. Deducting expenses using an FSA works out better for you than the childcare tax credit. You pay less taxes. Deductions are nice. But reducing your taxable income which is what the FSA does is way better. Because paying less taxes means more money in your pocket. We don’t have lots of medical expenses (knock on wood) but we do it based on a rough estimate of the copays over the course of a year for prescriptions my husband takes daily, one trip to the gynocologist for me, a routine doctor visit for each kid and at least 1 or 2 sick kid visits to the doctor. Throw in a trip or two to the dentist and it’s several hundred dollars. The paperwork to get reimbursed seemed intimidating in the beginning but it gets easier once you know what you’re doing.
18 Vesper // Dec 9, 2007 at 7:35 am
So I don’t know if this has already been mentioned b/c I’m short on time and didn’t read everyone else’s comments, but you just have to be careful about not taking out too much FSA. I work at a dentist office and my hubby needed 3 crowns this year. Knowing the cost of said crowns, we decided to take the full FSA medical out. Well, after talking to the dentist, and working for hours on my husband AFTER work, we ended up only paying about $250 out of pocket for his crowns. That presented a huge problem of now trying to figure out how to spend $1000 + before the end of the year. I think we’ll make it but still we’ve had to do some pretty frivolous things ( like spend nearly $800 on new glasses for my husband and $130 on compression tights for my pregnant belly and legs). Basically my only advise is don’t take out too much so you dont’ have to scramble to try and spend it before the end of the year!
19 Dugi // Dec 10, 2007 at 10:56 am
I’ve heard of FSA. It’s quite fascinating. I say go with whatever keeps the tax man quiet and gives u more money to sort out the essentials.
P.S I heard from a very reliable sounding financial adviser on the news that Washington is the best State to move to in the US in regards to income tax/insurence/primary education and home ownership. I was quietly very happy that you are already there.
20 hola, isabel » Blog Archive » So it’s not underground, right? // Dec 27, 2007 at 8:28 am
[...] come on over to my latest SeattleMomBlogs post to join the discussion about Flexible Spending [...]
21 Moira // Jan 21, 2008 at 10:13 am
You should definitely use the medical FSA! You can use it for dental work, Rx and dr. office co-pays, etc., sure, you know that. But you can also use it for contact lens solution, and OTC medications. Hello, children’s Tylenol. I probably spend $100+ just on that! Some people have the reimbursed money put straight into savings, which is a smart thing to do. Imagine putting $5K a year in your kids’ savings account or college account, with no extra “saving” on your part. I think that’s worth faxing a receipt to your HR dept!
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