Your civilian employer may offer you a host of benefits previously unavailable to you as a member of the military. The onboarding process can be overwhelming and confusing, and it’s not always immediately clear which benefits make sense for your needs.

There are two you may want to consider, however, especially if you pay for child care and have even moderate out-of-pocket health care expenses: the health flexible spending account (FSA) and the dependent care FSA.

What Is an FSA?

Some employers offer a flexible spending account (also known as a flexible spending arrangement) funded by an employee’s salary deferral that the employee can use to pay for certain out-of-pocket health care costs. Employers may also contribute to the account.

For 2022, the IRS limits health FSAs to $2,850 per year per employer. If you are married, your spouse can put up to $2,850 in an FSA with their employer as well. Note that employers may set lower limits for their workers.

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You can use FSA funds to pay for certain medical and dental expenses for you, your spouse, and your dependents.

A dependent care FSA (DC-FSA) is similar to the health FSA: You fund an account at your employer with up to $5,000 – a per-household limit that covers both your employer and your spouse’s employer, if both offer this type of account. The DC-FSA can be used to pay for dependent care services such as day care, preschool, summer camps, and non-employer-sponsored before- and after-school programs.

The funds in the DC-FSA can be used for expenses relating to children under the age of 13 or those incapable of self-care who live with the account holder more than half the year. If an elder dependent lives with you for at least eight hours a day, you may be able to claim reimbursement for adult day care or elder care.

Why Contribute to an FSA?

An FSA helps you pay for things that you would likely have had to pay for anyway, but now you get to do so tax-free.

Contributions to this account come out of your pay pre-tax. This means you’ll save an amount equal to the taxes you would have paid on the money you set aside.

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And for health FSAs, you have access to the entire annual amount you have elected to have withheld even though you have not yet had those funds withdrawn from your pay. For example, if you have elected to have $2,000 withheld from your paycheck for the year and have an unexpected $1,700 dental bill in February, you can use your FSA to cover those costs even though you have not yet contributed that much. (Note: this does not apply to DC-FSAs.)

What Are the Disadvantages?

While you probably have a good handle on what your child care costs might be, health care costs are harder to predict. It may be difficult to figure out how much you need to contribute to your account.

An inaccurate health care spending forecast could mean funds left over in your account at the end of the plan year. While the IRS allows employers to offer a “grace period” of up to 2½ extra months to use the money or the ability to carry over up to $570 to the following year, it’s important to note your employer does not have to offer these options. If they don’t, you may lose that money.

What Expenses Are Eligible?

You can use FSA funds to pay for health care deductibles and copayments, but not for insurance premiums.

The 2020 CARES Act greatly expanded the list of covered expenses. You can spend FSA funds not only on prescription medications, but also over-the- counter medications, feminine hygiene products, acupuncture, chiropractor fees, glasses, contacts, shoe inserts, bandages, and many other items. See IRS Publication 502 for a list of generally permitted medical expenses.

Is an FSA the Same as an HSA?

An HSA, or health savings account, is tax-advantaged, similar to FSAs. However, HSAs can be used only in conjunction with a High-Deductible Health Plan (HDHP). If you have an HSA through your employer, you cannot also have an FSA.

TRICARE users, take note: You cannot contribute to an HSA if you are enrolled in TRICARE, because TRICARE is not considered a HDHP. TRICARE enrollees can contribute to civilian employers’ FSAs.

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Is an FSA Right for Me?

Part of this depends on “doing the math” and seeing if it makes sense for you. Check out this MOAA calculator to see how participating in an employer’s FSA could cut your taxes and increase your take-home pay. Remember, the IRS does not allow for “double dipping,” so you can’t get reimbursed for an expense from your FSA and then also take it as a deduction on your tax return.

It’s also important to schedule your expenses well so they fall within your plan year and you don’t have any leftover funds. And you’ll have to be organized and diligent when it comes to keeping receipts and filing for reimbursement, or you’ll need to remember to pay using a special FSA debit card that some plans issue.

With a little planning, both health and dependent-care FSAs can be easy ways to save some money on everyday expenses.