ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How to Estimate a Flexible Spending Account (FSA)

Updated on October 3, 2012
Budget Wisely
Budget Wisely | Source

My husband and I love having a flexible spending account. We enjoy it as a benefit offered by his company for employees. While everyone has the potential to deduct health expenses on their taxes, the FSA makes it hassle-free!

The biggest concern with a flexible spending account is that you will lose money at the end of the year. A FSA is only good for one year, and the amount you deposit into the account can only be used in the same calendar year. So, if December 31st comes along and you still have money in your account, you cannot withdraw it or use it - it's gone!

For this reason, it's really important to estimate what your expenses will be throughout the calendar year when setting up your FSA. If you estimate well, you will have the money you need and won't lose any at the end of the year.

What is a Flexible Spending Account (FSA)?

What is Eligible for FSA?

The Internal Revenue Service (IRS) has very specific rules regarding what expenses can be deducted from a Flex Spending Account. In general, any expenses that you incur for medical and dental care can be paid using a FSA. These expenses can include payments made to doctors, dentists, or service centers such as hospitals. They also include prescription costs and lab work. However, as of 2011, expenses for over the counter medications are NOT included. To be sure you are estimating correctly, check the IRS web site for the specific rules. Any changes will be released prior to the calendar year in which they are effective.

Estimating Health Care Expenses

When setting up your Flexible Spending Account, you need to determine how much money you will need to cover health care expenses for the next calendar year. In most cases, you begin setting aside money through payroll deductions in January, and make your final deposit in December. Because the amount must be decided from the start, you need to estimate how much you will need. This can be really difficult...how can you know how often you or your family members will be sick this year?

Obviously, you can't predict exactly how much you will spend on health care in the coming year. But, you can make an educated guess based on several factors. The two primary factors in estimating future health care expenses are past history and insurance coverage.

Medical Care
Medical Care | Source

How Much to Contribute to FSA?

When deciding how much to contribute, first look at your medical and dental insurance policies. Find out how much you pay for doctor visits, prescriptions, dental checkups, and any other medical expenses that you incur on a regular basis. You can also review your past year's Explanation of Benefits paperwork from your insurance companies to find out how much you usually pay for these products and services. It is important to note any changes in your insurance coverage before relying completely on the past year's numbers.

Now that you know approximately how much you spend per prescription, doctor visit, and other items or services you expect to use in the next year, you can estimate how many of each you will need. For example, if you pay a specific amount for a prescription, and you usually fill it once per month, you can estimate the total amount that you will spend on that medicine in the next year. Here is an example:

Estimate of FSA Needs

Product or Service
Number per year (include all family members)
Out of Pocket Cost (after insurance)
Total Cost per Year
Doctor Visit
10
$20
$200
Blood Pressure Prescription
12
$10
$120
Allergy Shots
52
$5
$260
Quarterly Lab Tests
4
$15
$60
 
 
TOTAL:
$640
Medical Expenses
Medical Expenses | Source

Tips for Estimating FSA Contributions

Now that you have a good idea of your routine medical and dental expenses, you have a starting contribution amount. In the above example, you would want to contribute a total of $640 to your FSA for use in the next year.

You may want to increase your contribution above that amount for several reasons. Do you anticipate an increase in your medical or dental expenses in the next year? Are you going to have a baby? Do you have an operation or procedure planned? Or, will you have a child in braces in the next year? Any of these items may make you increase your contribution above the original estimate.

However, keep in mind that you lose any money that you don't use by the end of the year, so be careful not to increase your contribution too much. Do your homework first and find out approximately how much these additional charges will be, then decide if you are comfortable adding them in. My husband and I are more comfortable estimating a bit low so that we are sure we don't lose any money. I would rather run out of FSA funds before the end of the year than throw money away. But how you plan your contribution is ultimately about a combination of good planning and your comfort level with the risk of losing some money.

A little bit of planning goes a long way with estimating a flexible spending account contribution!

Prescription Drug Costs are Eligible
Prescription Drug Costs are Eligible | Source

Comments

    0 of 8192 characters used
    Post Comment

    • Amy Gillie profile imageAUTHOR

      Amy Gillie 

      5 years ago from Indiana

      Marcy - I don't know exactly why that works either, but I'm so glad it does! We use our FSA religiously! Thanks for reading.

    • Marcy Goodfleisch profile image

      Marcy Goodfleisch 

      5 years ago from Planet Earth

      This is one money-saving vehicle that too many people fail to use sufficiently. You can't easily deduct medical expenses on taxes (you have to have a ton of them before you can deduct), so it really does reduce your income tax. I love the fact that many plans now offer debit cards - so much easier than sending in a million little receipts every few months.

      It does not make sense to me that you can set aside money tax-free for medical expenses, but you can't deduct them from your tax form unless they add up to a certain amount. Go figure!

    • Crystal Tatum profile image

      Crystal Tatum 

      5 years ago from Georgia

      This is a very timely topic for me, as I am considering enrolling in an FSA for the first time. Thanks! Voted up.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)