What Is A Flexible Spending Credit Card?
A flexible spending credit card or a flexible spending account debit card is just a special debit card that enables you to purchase a range of goods and services that are considered to be medical expenses using the money you have saved in your FSA. An FSA is a flexible spending account where an employer offers to help employees deduct a certain amount of their salary to cater to health expenses.
How Does an FSA Work?
An FSA is an account wherein you decide to have your company pay a certain amount of money every pay cycle tax-free, which is credited to your FSA. Your chosen amount will be divided equally across the course of the year. This helps to lower your taxable income, thereby lowering the anticipated tax you will pay. It is also utilized as a means of reimbursement for all the qualified medical bills paid throughout the plan year.
At last, unlike other medical cost accounts, any balance in the FSA after the plan year is lost; so, you have to carefully project your expenses when making contributions to your account. The IRS has decided that your annual maximum contribution will be $2,850 for the present year 2023. To start, certain companies additionally provide an initial investment to your FSA.
Having an FSA Debit Card
Instead of submitting receipts and waiting for reimbursement, most FSAs are now equipped with prepaid debit cards that are easy to use. Yes, with an FSA debit card, you can pay with a tap for purchases and other products and services that qualify for the FSA.
On each purchase, the cost is immediately charged to the account balance of one’s choice and deducted accordingly. This means no out-of-pocket expenses and subsequent claims for reimbursements at your own time and convenience. Once you have made contributions from your paychecks towards your FSA, then the debit card can be used to spend the money.
The card can be used by health care providers, dental offices, vision centers, and a pharmacy. Your FSA debit card transaction can take place as long as the retailer you are purchasing from has an inventory information approval system or IIAS. This way the IIAS is helpful for the retailer to be able to check whether the expense qualifies at the point of purchase.
Expenses The Card Covers
FSAs allow for reimbursement of over two hundred types of expenses. Some of the most common ones that the FSA debit card covers include.
- Doctor visit copays
- Prescription medication costs
- Cosmetic treatments such as filling or braces for teeth
- Vision care including eye tests, frames, and lenses
- Objects are used for medical purposes, for instance, crutches, glucometers, or wheelchairs.
Other common expenses that may be eligible include acupuncture, therapy and counseling, hearing aids and tests, smoking cessation, and much more. Some of the products that fall under this category are OTC products that contain medicinal ingredients and may be allowed if recommended by the doctor.
The card can be very useful in paying those expenses you may have to incur, on an ongoing basis, and which are eligible for the automated claim system, and thus relieve you of having to make manual claims. In case of doubt about the eligibility of the expenses, do not hesitate to consult your plan administrator. Always save all receipts just in case you will be asked to prove your purchase at some point in time.
Offers Ease Of Access To Funds
The most obvious benefit of transferring your FSA balance to a prepaid card is that you can become an active user of the pre-tax FSA balance as soon as the transfer is done and pay for medical costs as they occur. In this system, there is no waiting for a reimbursement check to come in the mail or dealing with a pile of forms.
For instance, the card can help you withdraw the money when you end up with little cash, or when you undergo an expensive medical checkup before you have contributed to your paycheck to the account. Healthcare expenses can be quite costly at times but with the FSA debit card, it is much easier.
It also creates a way to ensure that the money, that you contributed to your FSA, gets utilized. By not having to file the manual claims it will be easier to use the account through the whole year for all your qualified expenses. It also ensures that one does not bequeath any balance for the year as per the set regulations by the Internal Revenue Service. The debit card makes it convenient to draw money from your tax-sheltered account balance.
Drawbacks To Know
While extremely convenient, there can also be some drawbacks to using an FSA debit card that is important to consider.
- Unlike most prepaid cards, the spending account cards do not have the cardholder’s name on them. Therefore, the card must be protected and the information stored in it should not be disclosed to everyone.
- It is not always clear which expenses are allowed and can be paid by credit card; thus, there is a risk of penalties for buying items allowed by the card. Many people advise that receipts should be saved because, at times, a follow-up may be needed.
- Refunds of the purchases made are greatly limited since eligibility is established at the point of sale. It also lacks the functionality to credit back to the card in most cases, meaning you are forced to fill an appearance for reimbursement.
- If ineligible expenses are purchased, or one fails to justify the charges when requested to do so, the employer may for some time block the use of the card. Some also allow penalties or fees if the card is mishandled.
While the convenience factor cannot be stressed enough, cardholders must ensure that they are judicious with their FSA debit card usage and retain itemized receipts.
All in all, a FSA debit card can be quite handy in utilizing FSA for reimbursement of a myriad of medical expenses without having to pay any taxes. It is recommended to speak with the benefits administrator for complete specifics concerning your employer’s FSA program policies and procedures relating to contributions or card usage.
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