Setup and Tracking of Flexible Spending Account (FSA)

Question

Quicken Premier user. I contribute pre-tax dollars to a health care flexible spending account (FSA; it is not HSA) offered through my employer every two weeks. The administrator of the flexible spending account offers a debit/credit card that is used to pay eligible medical expenses. I want to track the account in Quicken. I also track my payroll as well. What is the best route to take for setting up the account in Quicken and for tracking as it relates to tax reporting? Any suggestions would be greatly appreciated. Thanks!

mdross171 · Answer

Thanks for the info. I am aware of all the tax reporting requirements for FSAs and medical expenses in general. My question was more around how best to set it up in Quicken. Thanks again!

NotACPA · Answer

Extending the reply from  @CaliQkn, there's no tax reporting because the contributions to the FSA, and any expenses are all pre-tax.

Additionally, the medical expenses paid from  the FSA are  NOT deductible on your tax return,  since the income wasn't taxable,  the deductions aren't tax-deductible.

[Deleted User] · Answer

@mdross171 there is no tax reporting required for FSAs.  The FSA contributions are pretax dollars and not reported as taxable income, and thus, reduce your taxable income.  It's basically a savings account for pretax dollars to be used for qualified medical expenses.

*  Set up an offline cash or savings account for your FSA.  Designate a name for the account that describes the use and the year.  Designating the year is important because unused FSA funds are generally forfeited at year-end unless your FSA offers a grace period or carryover.
* Set up a pretax deduction in your paycheck for the FSA contribution.
* When you have a qualified medical expense, use your FSA debit card.  You can typically use your annual FSA contribution amount any time during the year.  So you may have a negative balance in your FSA if you use the most of the annual amount at the beginning of the year.  This negative balance then would be reimbursed with FSA contributions for the remainder of the year.
* If you pay a qualified medical expense from a spending account outside of your FSA, you can request a reimbursement.  Once reimbursed, you can show it as a transfer from your FSA account to your spending account to cover the medical expense in the spending account.  You can also use separate offsetting entries if you want to show more detail or have an audit trail.