Which Expenses Qualify?

There are four main types of accounts you can participate in with the Flexible Spending Account Plan:

Healthcare Reimbursement Account

This account reimburses you for healthcare expenses that are not covered by insurance.

You set aside money, before taxes, through regular payroll deductions. During the year, the plan reimburses you directly from your account for any qualified healthcare expenses you've paid that are not covered by insurance.

Common expenses that qualify for reimbursement include:

Doctor visits.

Co-payments.

Deductibles.

Prescriptions and medical supplies.

Over-the-counter drugs that are medically necessary like allergy medications, aspirin, or antacids. Click here for a more complete list.

Dietary supplements and vitamins with doctor's letter of medical necessity.

Dental services and orthodontics.

Eye surgery, glasses, and contacts.

Weight-loss programs with a doctor's letter of medical necessity.

Weight-loss over-the-counter drugs with doctor's letter of medical necessity.

Chiropractic services.

Vitamins with doctor's letter of medical necessity.

Psychiatric care and psychologist's fees.

Smoking-cessation programs.

Smoking-cessation over-the-counter drugs.

Dependent Care Account

This account reimburses you for daycare expenses for eligible children and adults. Through regular payroll deductions, you set aside part of your income to pay for these expenses on a tax-free basis.

To qualify, your dependent(s) must be:

A child under the age of 13, or,

A child, spouse, or other dependent who is physically or mentally incapable of self-care and spends at least 8 hours a day in your household.

Please Note: If your family's annual income is over $20,000, this reimbursement option will most likely save you more money than the dependent care tax credit you take on your tax return. You will also receive your tax savings in each paycheck, rather than once a year when you file your taxes.

Insurance Premium Account

This account allows you to pay for your health and other insurance premiums with tax-free dollars.

If you are covered under your employer's health and/or other insurance plans, you may be automatically enrolled in this account!

Be sure to check your Summary Plan Description for any additional rights or benefits provided by your company's plan.

Adoption Assistance

If you adopt a child, an FSA can reimburse up to $12,170 of adoption expenses in 2010.

You can only take the reimbursement once per child. So, if the adoption process spans several years, you need to consider which year is best (tax-wise) for taking the reimbursement.

This benefit is gradually phased out based on your income level.

You may also benefit by using the adoption assistance as a tax credit on your IRS Form 1040. The 2010 limit of $12,170 is the same as if the reimbursement is filed through your FSA.

However, if you fall in the 27% tax bracket or higher, paying for adoption expenses through the FSA will probably save you more money than taking the tax credit.

If you have more than $12,170 in qualifying adoption assistance expenses you may be able to be reimbursed up to the FSA dollar limit established by your employer's Cafeteria Plan and utilize the tax credit for additional qualified adoption expenses you have incurred.