This post was updated March 10, 2011.
If you were smart enough to sign up for a "flexible spending" account to pay 2010 medical bills, now is the time to check your balance and put together a shopping list to make sure you spend every penny that you put away.
That's because any money left in these accounts after the grace period ends on March 15th can be lost. But there are so many products and services that you can buy with flex-account dollars that the only way you could lose money is if you were unaware of your options or careless with your cash.
What can you charge to your flexible spending account?
Over-the-counter medical supplies: The rules have tightened a bit, requiring a prescription for any over-the-counter drugs bought with flexible health account dollars. But if you are able to get a prescription, you can use your flexible spending account to buy everything from Tylenol and cold remedies to bandages and condoms. Some doctors, inundated with requests, are only writing prescriptions for medications that you need for chronic ailments, such as asthma, and others are charging to write prescriptions. So be judicious about your requests.
Weight loss: If it's necessary to address a particular ailment, whether it's obesity, hypertension, diabetes or any other weight-related illness, you can charge the health account for your weight loss program, including membership and meeting fees. The only thing you can't use it for is food.
Rehab: Facilities that check you in to cure your addiction to alcohol or drugs are covered. You can also claim the amount it costs to get to and from Alcoholics Anonymous meetings, if you doctor says attendance is necessary to make you well.
Construction: If you need to add ramps, widen doorways, modify your showers or lights -- or even lower your kitchen counter tops -- to accommodate a dependent who has a disability, it's all considered an allowable medical expense that could be paid with health care account dollars. Government officials said that a family coping with a child's severe allergy to grass could even charge the account for replacing the yard with artificial turf. You can't use these tax-saving accounts to make changes that increase the value of your home, said Jody Dietel, chief compliance officer at WageWorks, a San Mateo company that administers these plans. But, retrofitting a house to accommodate a medical need? Absolutely.
Dentistry: Everything from your regular teeth cleaning to getting fillings and crowns are covered. But the health account cannot be used to buy a toothbrush or toothpaste.
Orthodontia: Kids need braces? Sign up for the flexible spending account. Most dental insurance plans exclude the bulk of orthodontia costs, but you can pay the bills with a health account which lowers your after-tax cost by 30% to 40%.
Therapy: Holiday debt hang-over getting you down? The cost of a visit (or many visits) to your psychiatrist, psychologist or psychoanalyst is covered.
Babies: Uninsured costs for everything from birth control pills to vasectomies; pregnancy tests to fertility treatments are allowable expenses. (Health care savings accounts won't pay your cost of adoption, but there's a separate tax break for that.)
Vision: Eye glasses, contacts and Lasik surgery can be paid for with health care account dollars.
Braille: You can use your health account to buy books and magazines in Braille. The cost of a guide dog is also an allowable expense.
Alternative Treatments: Your health insurance might not pay for a visit to an acupuncturist, chiropractor or Christian Science Practioner, but your flexible spending health account can.
Cars and Crutches: If you need to buy or rent crutches or re-configure your car to allow for a disability, it's covered. Wheelchairs are covered too.
Medical conferences: If you want to attend a medical conference that concerns an illness that affects you or a dependent, it's an allowable medical expense that can be charged to a flexible spending account.
Special education: If you or your child need tutoring by someone who is specially trained to deal with your disability, it's also covered.
Trips: If you must go away to get medical treatment, you may be able to charge the cost of the trip to the account.
Obvious & miscellaneous: Hearing aids; oxygen; nursing services; physical therapy; lab fees, as well as your co-payments and deductibles...all allowable.
What's not covered?
Cosmetic surgery: Unless it's a re-constructive surgery following, for example, a mastectomy to treat breast cancer.
Illegal drugs: Even if your state allows medical marijuana, drugs are not covered if they're illegal under federal law.
Lessons: You know that swimming and dancing lessons would be beneficial for your health. So would yoga and a personal trainer. But they're not considered allowable medical expenses under tax law, so you can't pay for them with a flexible spending account. Unfortunately, the same holds true for the cost of a gym membership.
Vacation: It's arguably as good for your mental health as therapy, but vacations aren't covered either.
Don't yet have a flexible spending account? If your company offers one, you ought to sign up. Every dollar you contribute is likely to save you 30 to 40 cents in tax.
"This is no reason somebody wouldn't want to have an FSA," said Dietel. "They help you pay expenses that you have in everyday life. With money incredibly tight these days, that just lifts a burden off your shoulders."
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