How Much Should You Stash in Your Health-Care FSA?

A health-care flexible spending account (FSA) is a special kind of savings account that you may be able to set up through your employer that would set aside a fixed amount of your pretax income for use in paying health care expenses that aren't covered by health insurance.

Your Next Year's Non-Covered Health and Dental Care Expenses
Input Data	Values
Estimated Copayments for Doctor Visits and Prescription Drugs
Deductibles and Copayments for Dental Coverage
Cost of Reimburseable Items (such as eyeglasses)
Expenses Related to Special Health Care Needs (such as diabetic supplies)
Expected Extraordinary Expenses (such as for baby delivery or major surgery)
Your Employers' Health Care FSA Information
Your Employers Maximum Health Care FSA Contribution Amount

How Much Should You Put in Your Health Care FSA?
Calculated Results	Values
Total Expected Health and Dental Care Expenses
Amount of Income to Set Aside in Your Health Care FSA

That sounds similar to a Health Savings Account (HSA), but unlike an HSA, you can't roll over any money you don't spend in the account for use in future years. Whatever money you set aside in your health-care FSA must be spent in the year in which it's deposited, or you will forfeit all the money you didn't spend.

But then it gets really ugly, because you would also then have to pay taxes on the unspent amount, even though you would be blocked from using any of the unspent money in your account to pay them, because you would already have forfeited that cash!

Meanwhile, the benefits of a health-care FSA can be pretty substantial, since the money you set aside in such an account would be exempt from federal and state income taxes, as well as payroll taxes supporting Social Security and Medicare, which would greatly reduce your tax liability. So you would get the advantage of being able to spend all the money, even if just for health and dental care-related expenses, and a lower tax bill.

That creates a dilemma - the benefits of having a health-care FSA are pretty attractive, but you definitely don't want to be left on the hook if you don't spend every penny you set aside in any given year.

The question then is how much should you stash in your health-care FSA?

And that's where our latest tool comes into play! Just enter the indicated data in the tool below and we'll work out how much you should set aside through your employer's health-care FSA.

In the tool, we've set the maximum contribution to your health-care FSA allowed by your employer to be equal to $5,000, which is the maximum contribution currently allowed by federal law. Beginning in 2013, this amount will be reduced by 50% to $2,500, which is mandated by the provisions of the recently passed Patient Protection and Affordable Care Act. Until 2013, your employer is free to set your maximum FSA contribution at any level they choose up to the current legal maximum contribution of $5,000.

It's nothing personal - it's just one of the many hidden tax increases on people with incomes below $250,000 built into ObamaCare®!