FSA Debit Cards: Flexible Spending Accounts Made Easy

by : Alan Jacobson

A flexible spending Account (FSA) is a way for you to put money aside tax free for important expenses. These accounts can potentially save you hundreds of dollars in taxes, but they often require a lot of paperwork so that you can prove you bought the "qualifying" product or service. FSA debit cards are relatively new to the market and make the process of having an FSA smoother and faster than it used to be. Now you can sit back and enjoy your lower tax bill without the hassle that used to come with keeping track of, copying, and submitting all your proof of purchases and receipts.

First some background. There are primarily three types of flexible spending account:

1. The Health Care FSA (also known as Medical FSA, Medical Expense FSA, or simply Health FSA), where qualified medical expenses are put aside. These can include insurance deductibles, co-payments, and coinsurance costs as well as specific products, treatments, and medications not specifically covered by insurance. Medical issues can be serious, or as simple as buying a year's worth of band-aids.

2. The dependent care FSA, where qualified child care (such as day or after care) expenses can be put aside. While almost always used for children, they can also be used for "adult day care" for elderly dependents (such as parents) that live with you.

3. The travel FSA, where costs of public transportation and in some cases tolls and parking can be put aside before taxes.

In each case the money put aside is subtracted from your earnings and then you are only taxed on the lower amount. More information about how to figure your own tax savings can be found at

In the past, the paperwork involved in having an FSA sometimes led people to avoid them. You had to keep and submit many documents, from receipts and bills to itemized statements. However, a new addition to the FSA market, one which makes things much easier, smoother, and paperless, is the FSA Debit Card. These are credit cards that are used to pay for any of the above expenses after you've signed up for an FSA account. You carry your FSA Debit card with you, and when something you are paying for through the flexible spending account, from day care to medical supplies, to parking, is a qualified expense in an FSA you have joined, you use the card. You are actually spending your own money that you set aside for the FSA from your earnings.

Currently there are 7 million or more debit cards tied to an FSA account. This includes involves almost one-third of people who have FSAs. By 2010, it is projected this rate will increase to 85%. If you don't use a debit card you will need to submit proof of payment for qualified expenses, such as receipts, bills, and statements. In many cases you still may have to do that anyway, as some expenses will have to be paid to providers that don't take debit cards.

There are two very important restrictions you should know about when signing up for an FSA and use your FSA Debit Card. Most importantly, all the money put aside must be spent within the "plan year", which is usually the calendar year (sometimes plus a 90 day grace period) but for some companies can be the fiscal year. The money left in the account at the end of the "plan year" is forfeited back to the company. In general it is vital that you check out the full listing of a FSA plan's inclusions, exclusions, and rules before signing up and before using your debit card. You may have to repay the company for any uses that are not within the FSA agreement.