With summertime activities winding down and the new school year hitting its stride, we’ve reached that time of year when life seems to slow down just a tad, giving us all a much-needed opportunity to sit back, breathe deep, and enjoy the relaxed pace and some cooler air.
Imagine heading into the hectic holiday season with crisp, clear vision and one less thing to worry about while you’re purchasing presents, prepping meals, and putting up with extended family.
Unfortunately, the thought of adding another expense to the budget heading into the holidays is enough for some people to put their vision on the back burner.
But, there is a budget-friendly option for those with an employer-provided medical spending account.
Get Ready to Flex Those Bennies
Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA) are benefit options provided by many employers that act much like a personal savings account. But instead of just setting money aside, funds are funneled into the account on a pre-tax basis and can only be used to cover qualifying out-of-pocket medical expenses.
What many people don’t realize is that the IRS recognizes many laser vision correction procedures, including LASIK, as qualifying medical expenses.
One of the big advantages of using an FSA or HSA to pay for LASIK, PRK, or other qualifying laser eye surgeries is that the funds are tax-advantaged, meaning they reduce the employee’s taxable income by being withheld before taxes are taken out of payroll. This makes the savings even more significant.
Depending on taxable income and filing status, the average American household falls into a tax bracket with marginal rates between 12% and 35%. By reducing taxable income through an FSA or HSA, contributors may find themselves in a tax bracket with a much lower tax rate, thereby saving a ton of money that would normally go to taxes.
At the very least, a participant’s annual tax savings would equal their annual contribution amount multiplied by their tax rate. For instance, someone that falls into the 22% tax bracket could save up to $605 annually by contributing to a tax-advantaged medical spending account.
The good news is that you don’t have to wait until the end of the year to cash in on your FSA or HSA and see the savings!
With an FSA, the full annual contribution amount is preloaded and immediately available for use at the beginning of the plan year. You just pay back the funds through regular paycheck deductions over the course of the year.
And a well-guarded secret about FSAs is that you are not responsible for the outstanding balance of the FSA if you are terminated before you’ve paid it back through deductions.
With an HSA, however, employees can’t borrow funds that aren’t already there. What you can do, though, is keep the receipts for qualifying medical expenses and reimburse yourself with tax-free dollars once you have enough money in your HSA account.
While an FSA provides a little more flexibility to its contributors in regards to when the funds are available, both medical spending accounts are a great way to pay for LASIK, PRK, or other qualifying laser vision correction procedures and save a significant amount of money by reducing taxable income.
If you’re still a little unclear on the details, differences, and advantages of FSAs and HSAs for LASIK, the following frequently asked questions should help you
Frequently Flexed Questions
What are the differences between an FSA and an HSA?
Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA) are two types of medical spending accounts that allow you to save and use pre-tax dollars for qualifying out-of-pocket healthcare expenses.
Aside from that, there are some key differences between the two.
FSA – Only employees of a company that offers this benefit can open an FSA.
HSA – Employees and self-employed individuals can open an HSA, but only if they have a high deductible health plan (HDHP) with a deductible higher than $1,400 for an individual and $2,800 for a family. And out-of-pocket expenses for in-network services cannot be more than $6,900/$13,800.
Annual Contribution Limits and Adjustment
FSA – For 2020, employees can contribute up to $2,750 to their FSA. Contribution amounts are set during enrollment and can only be adjusted with a qualifying life event such as a change in employment or family status.
In response to the COVID-19 pandemic, the IRS is allowing employers to give employees the option to start, stop, or change their FSA contribution amounts mid-year, without a qualifying event.
HSA – For 2020, an individual can contribute a maximum of $3,550 if their HDHP is single coverage. The limit increases to $7,100 for individuals with family coverage. Individuals who are 55 or older can contribute an extra $1,000. Contribution amounts can be changed at any time.
FSA – Unused FSA balances typically do not roll over to the next year. However, employers may choose to grant employees a grace period of 2.5 months to use their funds OR allow up to $500 in unused funds to carry over to the next year.
In response to the COVID-19 pandemic, the IRS is allowing employers to extend the grace period for unused balances to the end of 2020.
HSA – Account holders can carry over funds from year to year without impacting the new year’s contribution limits.
Role of Employer
FSA – Because an FSA is only offered as part of an employer-sponsored health plan, an employee would forfeit the unused balance with a change in employment.
Although it is not required, an employer may elect to contribute a set amount or make matching contributions to an employee’s HSA not to exceed the employee’s contribution limit. Contributions made by an employer are not taxed.
HSA – As long as an individual has an HDHP, they can continue to contribute to their HSA regardless of where or if they’re employed.
An employer may elect to contribute a set amount or make matching contributions to an employee’s HSA, though they are not required to. Contributions made by an employer are not taxed.
Impact on Taxes
FSA – Employee contributions to an FSA are pre-tax, and funds used for qualifying medical expenses are untaxed.
HSA – An individual’s HSA contributions are tax-deductible but can be withheld from payroll pre-tax. Distributions used for qualifying medical expenses are tax-free.
What is a “qualifying medical expense?”
The IRS determines what out-of-pocket medical expenses are eligible to be covered or reimbursed by FSAs and HSAs. The IRS is the definitive resource for qualified medical expenses, but this list is much easier to read and understand.
The good news is that LASIK and other laser eye surgeries to treat defective vision are qualifying medical expenses as long as you make an appointment with an eye doctor to determine that the procedure is medically necessary.
When can I use my FSA and/or HSA for LASIK?
The short answer is: Anytime!
We’ll cover a few caveats to that answer below, but it’s important to know you are not required to wait until a certain time of year to use your FSA or HSA on LASIK.
With an FSA, the contribution limit you set during enrollment is immediately available to be used for qualifying medical expenses. You do not have to wait until you’ve saved a certain amount to start using your account, but you are required to continue making contributions to your account throughout the year
At the end of the year or at the time of the job change, any unused funds will be forfeited.
Interestingly, if you use your FSA to pay for LASIK and then leave that job, you are not responsible for paying back the remaining balance.
If you have an HSA, you can only cover expenses with funds that are in your account. But, if you pay for LASIK out of pocket, or if your HSA only covers part of the cost, you can keep the receipts and essentially pay yourself back w/ pre-tax or tax-deductible contributions.
Our Final Flex
If you have any further questions about using a Flexible Spending Account or Health Savings Account to pay for LASIK or another refractive laser eye surgery at nJoy Vision in Oklahoma City, our staff is here to walk you through your benefits and options.