Is Two Better Than One?
When it comes to Flexible Savings Accounts (FSA), the answer to whether it is advantageous to have more than one account per family has a lot to do with how they are set up and how you use them. Here are some pointers that may help you decide if this is a good option for your family or not.
An FSA lets you apply tax-free dollars toward medical expenses. Therefore, it makes sense for everyone in the family to take advantage of these savings. The problem can be if one expense is covered by more than one account.
Therefore, if your child needs braces and you and your spouse each have your own FSA only one of you can submit the expense for reimbursement.
If both parents were to submit for reimbursement, this would essentially be double-dipping, and we all know that double-dipping can have bad consequences whether it is with chips and dip or with tax-free accounts. The consequences can even go so far as affecting your employer because they can face harsh penalties if your FSA is not used and set up properly.
Of course, these same rules apply if you have a Health Savings Account (HSA). (To see specific rules that apply to HSAs, please see our blog titled “How to Get the Most Out of Your Health Savings Account”.)
Therefore, here a few pointers that can help you stay organized and get the most out of your FSA or HSA without double-dipping.
- Learn what eligible medical expenses are. The IRS can charge you up to a 20% penalty for any expense that is covered by an FSA/HSA and not an eligible expense. A list of eligible expenses can be found here: https://hsastore.com/hsa-eligibility-list
- Hold onto every receipt and statement. You want to hold onto all those records if your tax return is considered “open,” which is about three years after you file, or while an HSA account is still active.
- Create a digital or a physical file folder. You can even create both so if one fails or is lost you have a backup.
Honesty is the best policy – when there is money in it. – Mark Twain