9

Using my FSA is pretty annoying. I have to submit claims and scramble to use it or lose it. Is there any advantage (aside from perhaps cash flow) of using an FSA over just claiming my medical/childcare expenses on my taxes? Is there a higher max or something? Because it seems to me that I'm just better off claiming everything on my taxes and being done with it!

  • Yeah, flexible spending accounts.... the spending is a little flexible, but the account itself isn't flexible. like, at all. – user296 Nov 24 '10 at 5:25
15

To claim medical expenses on your taxes they need to exceed 7.5% of your AGI, and then only the amount over 7.5% is deductible. That's not much. There is no "floor" if you use an FSA as it's all pre-tax.

If you're concerned about use or lose, then allot less next year. It's all what you're comfortable with.

  • 2
    Also you might consider an HSA instead of a FSA if one is available. Much easier to use and no use-it/lose-it issues. – JohnFx Nov 24 '10 at 2:39
  • Don't HSAs require the use of a high-deductible health plan? – user296 Nov 24 '10 at 5:24
  • 1
    @fennec - yes, they do. – Eric Petroelje Nov 24 '10 at 15:41
  • A surprisingly large amount of items are covered by an FSA, so I would that out and see if you needed anything. – chrisfs Jan 25 '11 at 2:23
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    @AaronBrager perhaps even more now; looks like the floor is now 10%! – mbhunter Feb 26 '14 at 2:34
5

mb's answer for FSA was dead on. You also mention child care - The child care credit comes with a phaseout based on income, the Dependent care account alows you to set aside up to $5K pretax money to covers these costs. It's pre-FICA and medicare as well, so the savings can be 33% pretty easily.

1

A normal FSA also gives you a short term loan: money earmarked is available in entirety immediately, while you repay it every paycheck. This is interest free, and if you time your large planned medical expenses for January, can be a nice cheap loan.

  • 1
    And if you leave the employer part way through the year, the "loan" balance is forgiven (you get to keep the money you got reimbursed in January even though you haven't had it withheld from your paycheck yet). – stannius Dec 1 '15 at 18:05

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