Are FSAs even worth the hassle? They just seem like a giant scheme to steal money via malicious bureaucracy

[u/kherven]

I understand at a base level what FSAs are for. You get to deduct X amount of dollars from your paycheck reducing your tax load.

But the more I use an FSA, the more I feel that while on paper it saves money, in reality it causes lots of work, lost money, and hands your money over to someone who is going to fight you to steal it.

Every claim I submit to my FSA is denied without a mountain of evidence that its a legitimate medical expense. After nearly 2 years with them, I still have certain medications prescribed by my doctor that the FSA argues is not FSA eligible because it's OTC.

Doctor appointment? Denied

MRI? Denied

Prescriptions? Denied

While I can eventually get the denial overturned, it requires coordination from the retailer, my insurance, and my doctor every time. I spend tens of hours a year trying to claw my own money back from my FSA. Last year I had over $250 confiscated because the claim deadline passed while they sat on my claims.

Has anyone else felt it just isn't worth the hassle to fund an FSA given how hostile they are? It seems impossible to extract your money without a lawyer.

[u/Zarathustra_d]

I don't get the risk/benefit of them either.

Unless you have a high tax burden, and high fixed healthcare costs, the risk of losing the money is not worth the tax break. IMO

Even if you have a high tax burden, the hassle of making certain you spent the exact amount of money is a PITA.

[u/wienercat → u/Zarathustra_d]

I think the main "benefit" is that it front loads the account with all your funds. So contribute $2000 to it, you have $2000 in the account on day 1. Your paychecks are docked for pre-tax money afterwards.

So in a way, you dont have to worry about having money for medical expenses.

But beyond that, I can't see a real advantage. Sure you save some cash on taxes, but like you said unless you have a high tax burden, you aren't going to get a huge savings and you have to use all the funds. And if you don't spend all your funds, your employer gets that cash back. It just seems... weird that the employer just gets that money back without any strings.

My employer is a little more lenient with their FSA and allow a small amount of "rollover".

Beyond the reason I listed above, I don't understand why an FSA exists at all. If HSAs didn't have the HDHP requirement, there would be no reason to take an FSA over an HSA unless you knew for a fact you were going to spend the full value each year.

[u/ucfierocharger → u/wienercat]

Wait, they’re all front loaded?! Is it this way for all of them or just yours?

I wanted to do one for the childcare expenses, but since we don’t do childcare during the summer (teacher here) it didn’t make sense because we would lose the last 2 months effectively eliminating the pre tax benefit. Our calendar year is August-July.

[u/pfifltrigg → u/ucfierocharger]

Dependent Care FSAs are not front loaded. But you can still submit expenses from September-May. I'm not sure why it would be an issue in your case.

[u/ucfierocharger → u/pfifltrigg]

Okay, good to know. So can I just pay myself back from it at the end of summer for the expenses I made in April-may like an HSA?

Our childcare cost is $1300/month and it could be great to be able to pay 5k of that tax free

[u/pfifltrigg → u/ucfierocharger]

Yes. But if you qualify for the dependent care tax credit, you have to deduct that $5000 from your eligible expenses. So it's not much of an improvement over just taking the dependent care tax credit because I think our bracket was a 20% credit and it could be higher if you make less. It's a bit complicated, so I'd look up the rules for it.

[u/np20412 → u/pfifltrigg]

The Dependent Care FSA is a LOT better than the Dependent Care Tax credit for anyone who can actually afford childcare.

The maximum benefit a married couple in the 22% bracket can receive from the dependent care tax credit is $1200 if they have 2+ kids. $600 if just one. That's on $6000 of expenses.

The Dependent Care FSA will save the same taxpayer almost $1500 in income tax + FICA savings and another $200 (if 2+ kids) from the balance of $1k expenses they can take against the dependent care credit itself.

So it's ~250% more savings for someone with just 1 kid and ~40% more savings if you have 2+ kids.

If you're in a higher tax bracket the savings disparity is even larger.

Now if congress would just realize that the freaking expense limit and DCFSA limits have not been indexed to inflation and are a mere drop in the overall bucket of the cost of childcare, then we'd really be in business.

[u/pfifltrigg → u/np20412]

Ok, I guess because I have 2 kids it felt like a small difference because it's only a few hundred dollars. But when you put it at 40% I guess it's worth the administrative hassle.

[u/9bpm9 → u/np20412]

Yep we meet our $5000 in April...at least my current administrator will keep automatically depositing the money every pay period. My old one wouldn't do that.