Save Money on Taxes and Get Healthier While Doing It!
As some of you know by now through reading my previous post titled “The Best Investment You Will Ever Make!”, I’m a big proponent of therapy to help one not only deal with the emotion trauma of the past and unhealthy behaviors, but also as a way promote a wellness, authenticity, and a life that is alive and whole.
One way to save on therapy is to go see a therapist who is within your network or covered by your insurance plan. This will help reduce costs as you probably just have a co pay or certain deductible until your insurance pays for the rest. But for those who have found a therapist you connect with outside of network (someone not in your insurance plan), it might be quite expensive. Furthermore, if you see a therapist as often as I do (two times per month), that cost adds up quick.
I also understand that everyone’s financial situation is very personal and unique. So please do what you are able to do and fits your financial parameters. I’m just here to help introduce new ideas to solve problems. To hopefully help you save money and optimize your finances.
So the other way to save on therapy is by using one of your benefits that may be offered to you through your employer, which is a FSA.
What is a FSA?
A FSA, or flexible spending account, is a special account where your company automatically deducts money from your paycheck to pay for certain out-of-pocket health care cost.
Well now you might be asking, well I can simply set aside money by myself and avoid this all, but here is the wonderful part. By doing it through your employer, you don’t pay taxes on any of this money! This results in you having a payroll tax savings! WOOT WOOT!
“Well what exactly do you mean by a pay roll savings?” you might ask. Well let’s say for example you make $50,000. You then elect to contribute $2,000 to your FSA. Your taxable income is now $48,000 ($50,000-2,000) as opposed to the full amount of $50,000 because of the benefits associated with your FSA! Better yet, you also get the full value of your dollar, in this case $2,000! Isn’t that a cool little neat trick there!
Another way to look at it is to ask the question, “how much are you going to save?” This is really dependent on the tax bracket that you are in with regards to your income level. This could be anywhere from 10-37%.
Let us assume that you are in the 24% tax bracket, you pay $125 for a therapy session. Through using your FSA, you would save $30 per session ($125*.24) that typically would have gone to the government in the form of income tax.
Contributing to a FSA can also potentially help you save on your overall income tax rate as well. Like we saw in the case of contributing to your 401(k), contributing to a FSA can potentially drop you down into another tax bracket. This double bonus only works if you are on the border of two different tax income brackets. For example if you make $85,000 and contribute $2,500 to your FSA, your new taxable income is $82,500. As such you will drop down from the 24% to 22% tax bracket for a single filer!
Word of Caution
Now before you start going crazy about this trick here are some notes of caution. As of this writing (2018), you are only allowed to contribute up to a maximum of $2,650 to your FSA.
Also note that on typical FSA’s there is the disadvantage that if you do not use all the funds by the end of the plan year, that money will be forfeited to the employer. This is known as the “use it or lose it” rule. But hopefully you love therapy so much that using the full FSA amount isn’t a problem.
Should you have extra money in your FSA before year end, you can still use the money towards any qualified medical expenses.
Even if you don’t want to use the money for therapy, you could use it to help pay for some costly surgery that you need.
While most providers and companies support therapy as a qualified medical expense, please check with your provider and benefits department to ensure this is the case.
Wrapping It Up
As of right now, I personally will not be using my FSA for therapy this year, but I will definitely be using it to help pay for my laser eye surgery and save cost there. I recently discovered this neat little savings trick this past year when I was actually looking into laser eye surgery and then it dawned on me that my plan allows for therapy to be covered under the FSA. I hope my research and discovery helps you not only save money, but it also provides an avenue for you all to become healthier versions of yourselves.
Let me know what you all think! Have you used this neat little trick to help save on mostly medical procedures or therapy?