Tax-free toast to your health

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What's new for 2013? FSA news for 2013 is both good and bad. The bad news is that one of the provisions of ObamaCare was to limit FSAs to $2,500 per year, starting in 2013. Many employers allowed squirreling away a maximum of about $4,000 or $5,000. Even so, the average amount pledged to an FSA account is about $1,400 or $1,500, depending on estimates. That's far less than the lowered cap. So, the change is unlikely to have a huge affect.

"It's still a significant benefit that people could be capitalizing on," said Andre Demetrius, southeast health and productivity practice leader for Buck Consultants, a human resources consultant.

The good news is the Internal Revenue Service is considering changing the "use it or lose it" rule, possibly allowing account holders to roll over all or some of the money to the following year. The IRS opened the question for public comments but made no ruling as of late September.

What can I spend the money on? You can use FSA money for healthcare expenses for you and your family. Typical items are out-of-pocket costs for insurance deductibles and copays for doctor and hospital visits, prescription drugs, and dental and vision services and products.

More unusual items are LASIK eye surgery, crutches, acupuncture, and smoking cessation and weight-loss classes.

Additional information is available from your FSA administrator. WageWorks offers a list of approved items at SaveSmartSpendHealthy.com.

What about over-the-counter medications? In 2003, the IRS allowed FSA money to pay for over-the-counter drugs, such as aspirin, cough medicine and allergy medication. But then beginning in 2011, over-the-counter medications came off the list of FSA-eligible products. However, there's a work-around. You can ask your doctor to write a prescription for over-the-counter meds. With the prescription, they qualify.

How can I afford to have more money taken from my paycheck? The question hints at a basic misunderstanding. The vast majority of people are going to spend some money on medical, dental and vision anyway. You may as well buy those products and services with tax-free money, which is essentially a huge discount.

"Some low-income people just don't see the value in it because they think it's about every dollar they take home, not realizing that anything you can do on a pre-tax basis benefits them," Demetrius said.

What if I leave my job during the year? This is another great part about FSAs. You can use up all your pledged money before it's taken from your paycheck. If you pledged $1,000 to the FSA, you could spent $1,000 on Jan. 2 at the dentist before you contribute anything. If you leave your job or get laid off and have depleted your FSA, you don't have to pay it back. (Your company gets stuck for the difference.) That's why it might be a good idea to use FSA money early in the year, if you can.

What if my medical plan is an HSA? Some companies offer a health savings account, which works similarly to an FSA but in conjunction with a high-deductible medical plan. Generally, if a company offers an HSA and FSA, the FSA will be limited to paying for dental and vision expenses, not medical.

Are there other kinds of FSAs? Yes. Many of the same arguments for healthcare FSAs can be made for dependent care FSAs if you spend money on childcare. You essentially pay the daycare center or other traditional daycare provider with pretax dollars. However, unlike the healthcare FSA, you can only spend the money after it's deposited in your account.

gkarp@tribune.com

Twitter: @spendingsmart

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