Financial Software and Flexible Spending Accounts «

Financial Software and Flexible Spending Accounts



Flexible Spending Accounts (FSAs)are referred to as Flexible Spending Arrangements in IRS Publication 969.
Enrolling in a Flexible Spending Accounts (FSA) reduces income taxes while increasing available funds for health care expenses by using pretax paycheck deductions to pay for uninsured health care expenses.

Such health care expenses can include the following, but this is not a complete list:

•insurance deductibles
•prescription and office visit deductibles
•many over-the-counter medications (antacids, allergy medicines, pain relievers and cold medicines purchased to treat a medical condition, but not nutritional supplements such as vitamins)
•eye glasses
•noncosmetic dental expenses and orthodontia
How Flexible Spending Accounts Work
An employer contracts with a financial institution to administer the Flexible Spending Account and gives the employee the details on how to use the plan.
The employee decides the amount to be deducted from the paycheck to cover medical expenses by estimating and reviewing the previous year’s health care expenses not covered by insurance. Any new, uninsured expenses which will come up in the new year need to be anticipated if possible.

As uninsured health care costs are incurred, documentation is forwarded to the Flexible Spending Account administrator who then reimburses the employee.

Because any unused FSA balance will be forfeited at the end of the year, health care expenses must be carefully estimated. It also may be wise to consider allocating less to the FSA that the total expected health care costs. If a balance exists at of the year, a purchase of an item or two from the approved expenses list will use up the Flexible Spending Account balance. For more information on Flexible Spending Accounts, see About Financial Planning’s Flexible Spending Account article.

Tools for Managing Flexible Spending Accounts
Quicken Medical Expense Manager is a great way to manage your FSA. Quicken Medical Expense Manager is most efficient for those who have numerous health care transactions throughout the year or for those who do not intend to use another financial software package to manage personal finances.
Where Quicken Medical Expense Manager is designed specifically for managing and tracking health care and related insurance transactions, traditional financial software packages such as Microsoft Money and Quicken can help you to keep track of what goes in to and comes out of your Flexible Spending Account. This is accomplished by using accounts in your financial software.

To set up a Flexible Spending Account in Microsoft Money, read Set Up an Account in Microsoft Money and use a cash or banking account as your account type. When you edit or set up your paycheck in Microsoft Money, click on the Deductions Before Taxes tab and enter a transfer to the FSA account you set up in the amount you designated to be deducted per paycheck. When you are reimbursed from the Flexible Spending Account, record a transfer from the account to the account you deposit the funds to.

To set up a Flexible Spending Account in Quicken, set up a cash account to represent the FSA and transfer the amount you designated to be deducted per paycheck to the cash account. When you are reimbursed from the Flexible Spending Account, record a transfer from the FSA cash account you created to the account you deposit the funds to, such as your checking account.

If you do not use Quicken or Microsoft Money and you can set up a paycheck in your software, you can set up a cash or banking account in your financial software to transfer Flexible Spending funds to and from as well. As an alternative, you could set up a category to funnel the funds deducted from your paycheck. Then use that category when you record deposits from your FSA reimbursements.

 

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