Flexible Spending Accounts (Limited): Who Qualifies and What You Get
Learn how to use pre-tax money for medical expenses through a Flexible Spending Account and understand the limitations for self-employed workers.
A Flexible Spending Account (FSA) is a way to set aside money from your paycheck before taxes are taken out to pay for various medical costs.
Who it's for
This scheme is designed for employees. It is generally not available to people who operate as sole proprietors.
What you get
You get the ability to use pre-tax dollars to cover your medical expenses. This reduces your overall taxable income, meaning you pay less in taxes while paying for healthcare.
What it costs you
The main cost is a strict rule regarding your balance. You must use the funds within the designated timeframe, or you may lose the money entirely.
The catch to know
Many freelancers and independent workers assume they can open one of these accounts, but sole proprietors usually cannot access this specific type of FSA.
How to apply
- Check your eligibility through your employer's benefits department.
- Review the list of approved medical expenses.
- Elect the amount of money you wish to contribute for the year.