Advantages of using an HSA or FSA

Advantages of using an HSA or FSA

In order to deduct medical expenses off of your taxes, they need to reach 10% of your adjusted gross income per the IRS rules. Did you know there’s a way to reduce your tax burden on medical expenses even if you’re under that 10% threshold? You can do it by using an HSA, FSA, or other tax-favored plans. There’s a lot of legal jargon in the references. The main gist is if your employer offers one of these options it would be a good idea to take advantage. Just make sure to read and understand whatever paperwork they give you to describe the plan and its features.

The money is taken out before taxes and put into an account. Then you submit receipts or benefit statements to prove you had a medical expense. The account then pays you your own money and taxes need not be paid on it because the account management has determined it’s a valid medical expense. What can you be reimbursed for? All kinds of things including, but not limited to:

  • Mileage to and from appointments
  • Tolls
  • Co-pays
  • Prescription Medications
  • Over-the-counter medications (only if it’s filled by the pharmacy via a written prescription)

Depending what account you choose there may be additional limitations. Some require you use the money you put into the account in the same calendar year. Others permit you to carry the money over indefinitely. By the time we pay for our share of our son’s medical supplies we’ve already used the vast majority of the money in the account so needing to use the funds in the same calendar year hasn’t been a burden for us. If you do find yourself with extra money near the end of the year there are things you can use it on which are nice to have. For example, you might buy prescription sunglasses for driving.

I won’t tell you it’s easy to do the extra paperwork. It depends on how organized you are and whether or not you submit the proper forms and receipts. I can tell you the amount of money you’ll save in taxes vs. the amount of work required is worth the tradeoff. Being organized is a learned skill and if it’s costing money not to be I’m confident you can learn to, at a minimum, not lose the paperwork entirely.

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