Flexible spending account

LeaningTower

I established a Health Care Flexible Spending Account with my employer this year. My employer deducts approx $20/pay period and places the funds into my new HCFSA account. Periodically, I submit the requisite documentation to my employer to get reimbursed from this account for allowable out of pocket expenses.

I'd like to pick the collective brain of this community to see how other people with similar accounts record and report the transactions. Here is the way I've been tracking it for the past several months:

I added a pre-tax deduction to the paycheck wizard to transfer the deduction (approx $20) to a new Quicken account (set up as an asset account). I continue to record my out of pocket medical payments in my spending accounts (usually a credit card acct, sometimes a checking acct). When I receive a reimbursement check from my HCFSA, I "categorize" the deposit as a transfer from the Quicken HCFSA, which (obviously) reduces the balance in that asset account.

The only problem I may have with this system is that at tax time, I have no easy way to identify out of pocket medical expenses that were reimbursed through the HCFSA and are therefore not deductible (because I already received the tax deduction up front). This will probably never become an issue for me, because my medical expenses are far less than 7.5% of my AGI.

But I'd like to tap the collective wisdom of the board and see if there is a better way to track these transactions (payroll deduction, expenses and reimbursements).

NotACPA

Instead of using an expense category for reimbursable items, set up another Asset account, I call mine Receivables. If, perhaps, you have non-FSA items that would also be receivable, use Tags to distinguish them.

When you get the reimbursement, record it as a Transfer to the Receivables account, which will net it to $0.

The rest of what you're doing looks right to me.

LeaningTower

Thanks NotACPA. Don't follow you, though.

Are you suggesting instead of categorizing medical expenses like doctor co-pays as a Health&Fitness:Doctor, that I categorize all of them as transfers to Receivables?

NotACPA

IF you're going to be reimbursed for them, YES, they're transfers and not "Medical Expenses" (at least for tax purposes).

Because you're being reimbursed, they're not deductible on your tax return.

You might want to use Tags (say, one for "Doctor") if you want to track them.

LeaningTower

thanks.

[Deleted User]

@LeaningTower another way to account for reimbursements from your employer is to use the same category for the reimbursement that you used for the original medical expense. The reimbursement and the medical expense category will net to zero on tax reports. Then on the tax reports you can easily see which medical expenses are not reimbursed, and the totals will show the correct net totals of your unreimbursed medical expenses for taxes.

LeaningTower

Thanks. If I utilize that method, how would I zero out the Quicken HCFSA account?

NotACPA

@LeaningTower (or, Torre Pendente) the problem with CaliQkn's approach is "How do you record medical expenses that AREN'T reimbursable". They'd get jumbled up with the reimbursable ones and make that category report confusing.

My approach keeps them separate … and still keeps them out of your tax reports.

[Deleted User]

@LeaningTower each time you get a contribution or deposit into your FSA from your paycheck each pay period it should increase your balance to the annual goal amount. Each time you have a medical expense, it should be withdrawn (reimbursement check) from the FSA to pay the expense. The reimbursement check transaction on Quicken should be coded with a category appropriate for the medical expense.

With each reimbursement check taken from your FSA, the balance decreases. The goal is to get close to zero as possible by the end of the year. Typically any unused funds left in the FSA at year end goes back to your employer. But depending on the arrangement, you may have a grace period, or be able to roll it.

Edit: I made some changes to the wording to make the process clearer. In my first comment, the use of "reimbursement" made me think it was an actual reimbursement for medical expenses, but it really isn't. You are really just paying the medical expenses using FSA funds.

But, it would be a true "reimbursement" if you pay the medical expenses from another account and then get reimbursed later through the FSA.

mshiggins

I use Tags. The reimbursable expense gets Reimbursable tag. When I get the reimbursement for the expense, I switch the tag to Reimbursed. All medical expense transactions with tag Reimbursed are not tax deductible.

LeaningTower

@CaliQkn

"But, it would be a true "reimbursement" if you pay the medical expenses from another account and then get reimbursed later through the FSA."

Yes, that is exactly how this HCFSA works. After I pay the bills, I submit a claim form with supporting documentation to get reimbursed.

[Deleted User]

@LeaningTower thank you for the confirmation. Then it would be a simple process in my opinion.

1. The medical expense is paid though a spending account.
2. The reimbursement is deposited to the spending account using the same category as the original expense transaction. Then the transactions will net to zero on tax reports, indicating that the expense is not tax deductible. Your Schedule A will show the correct balance for tax deductible medical expenses.
3. In your FSA account, you will have a corresponding transaction for the same amount that draws down the balance. Create a category such as "FSA funds used" or anything you would like.

Doing it this way will always ensure that your Schedule A totals for tax deductible medical expenses are correct and that you will always know what your FSA balance is.