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A flexible spending account (FSA) lets you set aside money from your paycheck (on a pretax basis) to use for eligible out-of-pocket expenses. The two most common types of FSAs are health care and dependent care.

Health Care FSA
This account reimburses you for various eligible health care expenses. These include medical, dental, vision, hearing and prescription drug expenses. You can also use the FSA funds to pay for copays, coinsurance and over-the-counter (OTC) items.

Dependent Care FSA
This account reimburses you for eligible child and adult care expenses. Such expenses include day care, before and after school care, nursery school, preschool and summer day camp.

The benefits of having an FSA can help reduce your taxes and increase your take home pay! The money you contribute to an FSA is exempt from federal taxes, as well as most state and payroll taxes.

Getting Started is Easy
First, decide if you want to enroll in a health care and/or dependent care FSA. Then, review your expenses from last plan year and think about what you expect to spend this year. This will help you decide how much to contribute to a health care or dependent care FSA. Your employer will deduct your pretax contributions from your paycheck (in equal amounts during the year) and deposit into your FSA.

FSA Contribution Limits
The current annual health care FSA pretax contribution limit is $2,500. If you and your spouse each have a health care FSA, you can each contribute $2,500. The dependent care FSA limit is $5,000 per household/family. If you and your spouse each have a dependent care FSA, you are limited to $5,000 between the two of you. If you’re married and filing taxes separately, your contribution limit is $2,500.

How to Use Your FSA Funds
If you pay for eligible expenses with cash, check or a personal credit card, you can submit a claim to Compass Care Management LLC and receive reimbursement in the form of a paper check or direct deposit.

With an FSA, it’s important to estimate and contribute only what you think you’ll need for the coming year up to the annual maximum. Start by reviewing your health care expenses for the past two years. Then use these figures as a guide to decide what you may need for next year. Compass Care Management can provide you with a FSA Worksheet to help you determine the amount of money you should contribute into your FSA plan.