Make sure you sign up for a flexible spending account!

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The thing that people forget to do when they start a new job (and for us who are just starting residency) is to take the time to fully understand all the benefits that you can qualify for. The thing that I want to let you all know about is what is called the flexible spending account or the FSA.

The FSA is a program designed by the government as a tax advantage “cafeteria plan” of the employer in the US. It allows people like you and me to set aside a part of our earnings for specific expenses that are listed in this plan. The money is deducted from our pay and not subject to payroll taxes. What does this mean? This means that you don’t pay ANY tax on this portion of the money. You save money by not paying Social security tax, medicare tax, federal income tax and state income tax on your money.

The FSA money can be reclaimed through the use of paper claims or an FSA debit card called a flexcard. So how much money do you save? Say you put in 100 dollars in this account. Say you are in the 25% tax bracket. You automatically save 25 dollars on that 100 dollars (for simplicities sake i’m not graduating the tax rate to build up to 25%) Anyway not only do you save this 25 dollars, you save state tax on that too. Georgia state tax is 6% so you save another 6 dollars. Not only that, you save on FICA and Social Security. FICA is basically your medicare tax- both FICA and social security come up to around 6-7 percent. All in all, you save around 35 dollars for every 100 dollars you have in this plan. Its like getting a 35% discount on all your health care needs that qualify under the FSA plan.

If you are in the 28% tax bracket you can save up to 40% on your healthcare. This is such an awesome plan that you shouldn’t pass this up. The disadvantage about this plan however is that it is a “you use it or you lose it” plan. This means that at the end of the fiscal year, if you do not use all the money that you saved aside for this plan, you lose that money. The trick is to plan accordingly.

The next awesome part about this plan is that it covers everything from copays to over the counter medications. When I saw this plan I actually wanted to know what was covered. This is the website that I used to figure out what was covered. The various stores use what is called the Inventory information approval system. It works much like the barcode system that is in place today for food stamps. Every item that is in the grocery store database gets flagged a yes or no for FSA eligibility. Other items not in the IIAS system but that which is covered include prescription drugs. At checkout, the scanner or shopping cart keeps a separate total for items that are FSA eligible. The FSA debit card is presented for payment and the card will be charged only for the FSA eligible items.

Another thing that you can use your FSA plan is daycare or child care which is capped at 5000 dollars. The dependent care FSA is a little more complicated so I suggest that you do a thorough search on this topic.

Also remember that the FSA plan is different from the health savings account or the HSA which is great for people who have health insurance with high deductibles.

* link to site with quick reference to OTC that are covered.

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