An employer-sponsored savings account called a Flexible Spending Account (FSA) allows employees to set aside pre-tax funds for medical expenses that are not taxed. Contributions made with pre-tax earnings help reduce overall taxable income in this type of account, which is also known as a flexible spending arrangement.

The purpose of this case study is to provide an explanation of how much a taxpayer should contribute to the FSA plan to cover medical expenses for the current year.

Case Study One

Bill plans to save pre-tax dollars for his medical expenses by utilizing his FSA. To meet his expected expenses for the year, he needs to adjust his current plan.

• The estimated expenses are $2,600, which includes $1,850 for dental work and $750 for doctor visit copays.
• The current contribution plan is $25 per weekly paycheck, with approximately 52 paychecks per year, which total $1,300 for the year.

Conclusion: Bill's expected expenses of $2,600 require him to increase his weekly contribution to meet this amount.

Case Study Two

Bob is anticipating spending $350 on prescription glasses in February of this year (2024). From the previous tax year (2023), Bob still has $400 left in his FSA account. Bob doesn't anticipate spending any more money on medical, dental, or vision expenses.

Bob can utilize the balance in his FSA account from last year (2023) until March 15th of the current year (2024). Bob should try to use up the balance in his FSA account from the previous year before March 15 because FSA balances don't roll forward. Bob is exempt from contributing to his FSA account for the current year because he doesn't expect any other medical, dental, or vision expenses in 2024.

Case Study Three

On the first day of every month, Ivory receives payment and intends to contribute $500 to her FSA account every paycheck. For the current year (2024), Ivory expects to spend $6,000 on medical expenses that are not covered by insurance.

Ivory anticipates spending $6,000 on medical expenses this year, but there is a FSA contribution limit of less than $6,000. Thus, Ivory will have to decrease her planned payroll contributions. Ivory will be interested in contributing the maximum amount allowed to her FSA. In 2024, the taxpayer can make a contribution of up to $3,200 for a Health Care FSA or a Limited Expense Health Care FSA.

Case Study Four

Chelsea, who has two young children, is a single parent who earns $100,000 every year. Her children's medical expenses are typically $10,000 annually. Chelsea is interested in contributing the maximum amount possible to her Dependent Care FSA. Chelsea contributed $3,000 to her Dependent Care FSA in 2023 and intends to contribute the same amount this year.

Chelsea is eligible for a Dependent Care FSA and has the option to contribute over $3,000 in the current year (2024). Chelsea needs to contribute the maximum amount because her dependents' medical expenses average $10,000 per year. Taxpayers can contribute up to $5,000 per household or $2,500 if married filing separately under a Dependent Care FSA for 2024.