Did you know that you can pay for tampons, pads, fancy moisturizer, sunscreen band-aids vitamins and more using pre-tax money? I just learned this today and I have been rubbing my hands with glee ever since!I am raising a ginger child in Southern California so the sunscreen savings alone will probably allow me to retire a year earlier.
HSAs (Health Savings Accounts) and FSAs (Flexible Spending Accounts) are special accounts that you can fund with pre-tax money or deduct from your taxes. To put it simply, this means that if you earned say $60k, you could put $2k into one of these accounts and only get taxed on the remaining $58k. The catch is that you can only spend the money on qualified medical expenses such as deductibles, co-pay and co-insurance. I was aware of this before but while it seemed a great way to reduce taxes, it was hardly a very exciting way to save money. That is until I heard about the HSA and FSA stores, which only sell items that qualify for purchase with these accounts. While I expected them to be full of eye-wateringly dull items, like crutches and special commodes for the elderly, to my surprise I found hundred of items that we regularly spend money on. From fancy makeup wipes to herbal panty-liners (whatever they are), baby-monitors and vitamins it looked like a CVS pharmacy full of tax-deductions. As well as the specialized online stores, places like Amazon and Walmart have designated HSA and FSA sections full of goodies.
Given the amount of time we have spent over the last few years debating about whether feminine hygiene products should be taxed (they shouldn’t!) I was amazed that this little hack isn’t common knowledge. If you didn’t know this either then I suggest you head over to those stores sharpish and start shopping down your taxable income! There has never been a better time to try out that fancy La Roche-Posay face cream.
What is an FSA?
If you have health insurance through your job then you can open a Flexible Spending Account to pay for qualified medical and dental expenses such as co-payments, deductibles, some drugs and as we now know; tampons and sunscreen!
Your employer can make contributions too but they don’t have to. Any money that you put into your FSA account won’t be counted as taxable income, so you will be taxed as if you had earned that much less. There is a limit of $2,750 per year per employer but your spouse can open one too and you can use the funds in each other’s accounts for yourselves and your dependents.
You must use the money within the plan year so be careful not to fund the account with more than you need. If you have excess in your account then knowing about the FSA shops is even more important. Now is the time to load up on non-perishable items!
What is an HSA?
If you have health insurance either through your job or through the marketplace and have a high-deductible plan then you are eligible to open an HSA, just make sure that your plan says “HSA Eligible” as not all high deductible plans qualify.
HSAs offer tax breaks in 3 ways. Firstly they can be funded pre-tax (if provided by an employer) or the funding is tax-deductible (if you open it yourself). That means that any cash that you stash in there won’t count when it comes to calculating what you owe the IRS. Secondly you are allowed to invest your HSA money and any growth is exempt from tax. Thirdly, you won’t pay tax on any withdrawals made for qualified medical expenses... or face cream!
Unlike an FSA, your balance can be rolled over every year, so if you haven’t blown it all on fancy panty liners and organic lip balm then you have another chance to do so in the future.