Flexible spending account limits govern the amount of tax-free money a person can contribute to cover medical expenses not covered by insurance. Employers set maximum limits subject to change, and there are regulations about how the money can be used. Unused funds are forfeited at the end of the tax year.
Flexible spending account limits are rules that govern the amount of money a person can contribute to this type of account. A flexible spending account allows a person to deposit tax-free money into an account and use the money to pay for medical expenses that their health insurance won’t cover. The regulations for these accounts also govern when this money must be used and what happens to the money left over in a given tax year. Employers typically set maximum flexible spending account limits, but that is subject to change.
Many people use flexible spending accounts as a way to supplement health insurance that doesn’t fully cover their needs and save on taxes. The money a person chooses to contribute to this type of account is contributed before the taxpayer has taxes deducted from their paychecks. This reduces the account holder’s taxable income and may translate into reduced tax liability. However, there are soft limits on spending accounts that govern how much a person can contribute in a tax year. Since the limits are subject to change, a person can check with their employer or a tax agency for the current limits.
In addition to the flexible spending account limits that govern how much money a person can contribute, there are also regulations about how the money in this type of account can be used. The money can generally be used for unreimbursed medical, dental and vision expenses, as well as mental health counseling fees. These accounts can also be used to pay for unreimbursed hospital fees and long-term care, certain types of insurance payments, drugs, and nursing care. A person can also use flexible spending account money to cover acupuncture treatment, alcohol or drug abuse treatment, and non-elective cosmetic surgery. The funds can even help a person meet deductibles, manage family planning costs, and cover the costs of dentures, braces, and wheelchairs.
Learning about flexible spending account limits can help a person consider whether or not to use all the money they deposit in a given year. While this type of account can allow a person to save money on taxes and set aside money to cover medical expenses for which they are not covered, it can sometimes result in a significant loss of funds. Unfortunately, money in a flexible spending account doesn’t roll over to the next year. Amounts not spent by an account holder in a given tax year will be forfeited. For example, if an individual has $2,000 US dollars (USD) in a flexible spending account and only files claims for $800 US dollars, he or she may lose $1,200 US dollars.
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