Understanding Northrop Grumman’s Health Care FSA

What is a Health Care FSA?

A flexible spending account (FSA), also called a “flexible spending arrangement,” is a savings account with specific tax advantages. The accounts are established by employers for their employees. Northrop Grumman offers two types of FSAs: The Health Care FSA and the Dependent Day Care FSA. We will be reviewing the Health Care FSA.

Note: Do not confuse the FSA with a Health Savings Account (HSA), (Read about HSAs here). If you have established an HSA, IRS rules may prohibit/limit your eligibility for an FSA. Ensure you ask your human resource department about utilizing both accounts.

KEY TAKEAWAYS

  • Funds contributed to the account are deducted from your earnings before they are made subject to payroll taxes.
  • The money in an FSA must be used by the end of the plan year, but Northrop may offer a grace period of up to two-and-a-half months.
  • You can use funds in your FSA to pay for certain medical and dental expenses for you, your spouse, and your dependents.
  • You can spend FSA funds to pay deductibles and copayments, but not for insurance premiums.
  • You can spend FSA funds on prescription medications, as well as over-the-counter medicines with a doctor’s prescription. Reimbursements for insulin are allowed without a prescription.
  • FSAs may also be used for medical equipment and supplies like crutches and bandages.
  • Remember to save all your receipts to help you determine how much to allocate to your FSA for the following year.
  • The deadline to incur expenses is Dec 31st (end of the plan year).

How Does an FSA Work?

You fund the account through payroll deductions and your elected contribution will be evenly divided and deducted from each paycheck throughout the plan year (Jan 1st – Dec 31st). The funds in the account can then be used for eligible medical, dental, and vision care expenses.

A significant benefit of the FSA is that your contributions are deducted before taxes, which reduces your taxable income for the year and allows you to pay for eligible medical costs with tax-free dollars.

You will be issued a debit card for your FSA but can also submit a claim with proof to receive reimbursement for your costs.

What Are Eligible Expenses?

The FSA can be used to pay for eligible medical, dental, and vision care expenses for you, your spouse and your dependents. Some eligible expenses include:

  • Copayments
  • Coinsurance
  • Prescription drugs
  • Birth control
  • Pregnancy tests
  • Insulin
  • Over-the-counter medical devices, such as bandages and crutches

Note: Your insurance premiums ARE NOT Eligible. For a full list of eligible medical expenses review IRS publication 502.

How Much Can You Contribute?

The IRS limits FSA annual contributions. For 2020 the limit per employee is $2,750 (Your spouse can fund their FSA with $2,750 as well).

Any funds left in the FSA at the end of the year or grace period are forfeited.

So, plan carefully, do not fund your account with more money than you plan on spending on eligible expenses within the year.

Some plans allow you to carry over $500 into the next year, and others give two-and-a-half months to finish using your account balance. Either option can be offered, but not both. Ask your human resource department if your plan provides either extension option.

If you find yourself scrambling to spend your FSA funds, consider stocking up for the next year with less obvious items, such as pre-moistened lens wipes, eye drops, or reading glasses. You can even ask your doctor for a prescription for over-the-counter drugs such as aspirin, ibuprofen, or cold medicines. These items qualify for FSA spending, but require a prescription.

Is an FSA Right for You?

As most things go, there’s no one-size-fits-all when it comes to FSAs. To decide if the account is right for you, take stock of your health. If you have any ongoing or expected medical costs in the upcoming year, an FSA may be a great option. If you can’t think of ways, you’d use the account; then, it’s probably not right for you. Most young, healthy individuals with decent benefits, should have low out-of-pocket expenses, so an FSA may not be worth the effort.

Author: Armenta, MsBA, ChFC®, EA

Jose is a financial planner who writes about Federal Government employee benefits in a way that is easy to understand.

Leave a Reply