What are flexible spending accounts (FSAs)?

Complete Guide to Flexible Spending Accounts (FSAs)

Why This Question Matters for Colorado and Utah Residents

Understanding FSAs is crucial in Colorado and Utah, where rising healthcare premiums and higher-than-average employee cost-sharing make every tax-saving strategy count. With over 31% of family premiums paid by employees in our region—above the 28% national average—knowing how to leverage FSAs can take real pressure off your budget.

• High-deductible health plans are common: In Colorado, HDHPs are popular, making out-of-pocket medical costs a regular reality. FSAs help manage these expenses using pre-tax dollars.
• Use-it-or-lose-it rules require careful planning: Many Coloradans and Utahns lose money each year by underestimating FSA deadlines or allowable expenses.
• Dependent care is costly: Front Range and Wasatch Front families face steep child and eldercare costs—FSAs can help offset these, but only with proper setup and diligent tracking.

What Most People Get Wrong

Many residents assume FSAs are just for medical expenses. In reality, there are also Dependent Care FSAs (DCFSAs) that can be used for daycare, after-school programs, summer camps, or elder care—vital resources for working families in Colorado and Utah’s expensive childcare markets.

Another frequent misconception: FSAs aren’t the same as HSAs. FSAs are employer-owned, have stricter use rules, and funds generally can’t carry over (outside of a small exception or grace period), whereas HSAs offer more flexibility but require a compatible high-deductible health plan.

The Complete Picture

Flexible Spending Accounts (FSAs) allow you to contribute pre-tax income to an account for eligible healthcare or dependent care expenses. For 2024, individuals can contribute up to $3,200 to a healthcare FSA (amount may vary by plan), reducing taxable income and saving money on expenses like copays, prescriptions, or childcare. Colorado and Utah residents commonly use FSAs to cover expenses that aren’t fully paid by health insurance—think braces, physical therapy, or day camps. However, FSAs operate on a use-it-or-lose-it calendar: most plans require the funds to be spent in the same year, with only a few offering a short grace period or allowing a carryover of up to $640 (2024 guidelines).

Why does this matter locally? With medical and dependent care costs rising—average family benefits premiums in Colorado now top $25,500 a year—making the most of every tax dollar is a smart move. But all the benefits of an FSA go away if you over-contribute, miss deadlines, or don’t track qualifying expenses. Successful use takes planning, but the payoff for Colorado and Utah residents can be hundreds of dollars in tax savings each year.

Making the Right Decision for Colorado and Utah Residents

Question 1: How much should I realistically contribute to my FSA?

Review last year's out-of-pocket expenses (co-pays, prescriptions, childcare, or therapy). Estimate the next year's likely expenses, factoring in known medical needs, recurring therapies, or planned child care.

• Maximizing the full FSA limit is smart only if you know you’ll incur enough eligible expenses to use it up before the deadline.
• Consider possible changes—job loss, moving, or a new dependent can affect your needs and your plan’s rules.

Question 2: What types of expenses are covered—and what aren’t?

In both Colorado and Utah, FSAs cover medical/Dental/Vision out-of-pocket costs, AND dependent care expenses for children under 13 or eldercare—all with IRS-approved lists. Cosmetic procedures, most insurance premiums, and overages beyond the annual cap don’t qualify.

Question 3: Am I prepared to meet plan deadlines and track receipts?

Set reminders for year-end deadlines and submit claims before the grace period ends. Many local employers use apps or automated submission, but keeping backup documentation is crucial in case of an audit or dispute. Remember: unspent funds over the allowed carryover are forfeited. Double-check with your HR or benefits administrator for your specific plan’s grace period and carryover policy.