The New FSA Carry Over. U.S. loosens FSA rules and will allow a carry over of up to $500 to the next year. The use-it-or-lose-it rule scared off many workers, with just 25 percent of eligible workers participating in healthcare FSAs.
The most recent prior change to FSA this year was a limit of $2,500 that a worker can set aside.
The health care Flexible Savings Account (FSA) can reimburse you or help you pay for eligible health care expenses not covered by your health plan. The portion of your paycheck you put into your FSA is taken out before you pay federal income taxes, Social Security taxes and most state taxes. It’s a great way to save money.
Example FSA Savings
|Without FSA||With FSA||Savings|
|Contact lenses and solution||$400||$240||$160|
|Braces and dental co-insurance||$2,520||$1,512||$1,008|
Generally, contributions you make to your FSA are not subject to federal income taxes or social security taxes. In most instances, there are no state taxes taken out either. The amount you may save depends upon:
- The amount you put into your FSA
- The tax percentage you would normally pay on that money (tax bracket)
Let’s say you want $2,000 taken out of your paycheck this year to put into your FSA. The money you direct to your FSA is taken out of your check before taxes are taken out. That reduces your taxable income by $2,000.
Let’s say you normally pay 30 percent in federal, social security and state taxes on your income. In this example, you would enjoy a tax savings of 30 percent of the $2,000. In other words, you could get a $600 tax savings on the $2,000 you directed to your FSA.
This example should not be taken as tax advice. See a tax advisor to seek the best advice for your situation. To see how much you may save, check out Aetna’s FSA Savings Calculator.
Aetna FSA Savings Calculator.