<p>Hi,
We have had a $2500 health care flexible spending account in the past, and we're trying to decide whether to do it this year. D is class of 2018. Any pros or cons with regard to financial aid for doing this or not? I know it gives us a break on medical expenses because we don't pay federal taxes on the amount used. We always use at least $2500 so the use-it-or-lose it feature makes no difference to us. Does anyone know if it impacts financial aid in any way?
Thanks!</p>
<p>I imagine the income has to be reported as untaxed income, but it’s a small enough amount that it shouldn’t make a difference to aid. I would think the tax benefit is greater than any loss on the aid side. Of course, that is just my gut feeling, not a professional response.</p>
<p>Does your D’s school require css? On css, fsa is required to be reported.</p>
<p>We always take out our $2500 flexible spending account. I honestly don’t remember reporting it but if I did it didn’t impact our aid that I can remember. It was much nicer having that money saved for medical expenses. </p>
<p>Hmmm. We had a flexible spending account. I don’t recall that it was reported. A HSA was included, but not FSA.</p>
<p>If I remember correctly, the NPCs that I ran (and these were all for CSS/Profile schools) asked about untaxed income, to include amounts contributed to HSAs and FSAs.</p>
<p>Yes the school uses profile. I do know that Health Care SAvings accounts are treated differently than health Care Flexible Savings Accounts. </p>
<p>So if something is reported as untaxed income, say the 2500, do FA formulas then add 2500 to your income? The 2500 is not deducted from the amount in box1 w2 that is used for earnings, so why would it be added back? I am very confused about this.</p>
<p>CSS question PI-200B: Enter the total amount withheld or to be withheld from your parents’ wages in 2013 to contribute to a flexible spending account for medical expenses.</p>
<p>PI-203B: Enter the total amount withheld or to be withheld from your parents’ wages in 2013 to contribute to a Health Savings Account (HSA).</p>
<p>So both FSA and HSA are reported in CSS Profile. However, it is still beneficial to your family to contribute to both HSA and FSA as you need to pay medical expense anyway.</p>
<p>Contributions to the HSA are added to income for that year on top of the 1040 AGI that excludes them (just like for IRA and 401K0 . But taking out HSA money to pay medical expenses are not included as income when they are so spent. </p>
<p>@cardamom, neither HSA nor FSA contribution is included in W2 income. </p>
<p>THe numbers you need to report from your W2 onto your tax returns will not have 401K, HSA or FSA contributions on them. So when you take that number from that line of your 1040 and put it on FAFSA, you have to add back the contributions you made to those plan, and it will specifically tell you so in the FAFSA instructions. You get a tax break from those contributions in that they are not included in your AGI, but FAFSA consideres them discretionary and you have to include them as part of your income for that year. Once the money is in the accounts, however, they are NOT included as assets for FAFSA purposes, nor is any interest or gains reportable. </p>
<p>What’s different, however, about HSA’s is that distributions used for qualified medical expenses are not included as income on the FAFSA, but they are from 401Ks, for example.</p>
<p>The FSA basically allows you not to count the 2500 in your income for tax purposes. It still gets counted for financial aid purposes, which is why the forms ask you about it. But having to add it back in for financial aid is not worse for financial aid than never having deducted it, and deducting it has tax benefits. So… you should still do it.</p>
<p>Ok that makes sense. Thank you so much for your help! </p>
<p>Just checked my last Profile…done in 2009. Yes, the FSA money was included. And yes, it appeared on my W-2.</p>
<p>So do schools think you should NOT contribute to the FSA, or that you should take the money from the FSA and spend it for tuition? </p>
<p>Who needs to go to the doctor? Just suck it up, buddy.</p>
<p>It isn’t about “thought”. We can come up with all sorts of answers and rationalizations about this. I mean you don’t necessarily get any leeway about medical bills that many have to pay without insurance or HSA s or the such. You have to ask for professional judgement for any chance of consideration for those, and often maybe get asset consideration for such earmarked funds, if that. No guarantee of anything. </p>
<p>It’s just the way FAFSA is set up. There are some quirks, niches, advantages and out and out inequities in the formula (the way single parents are treated in asset protection for example). That’s just the way it is. </p>
<p>But it IS about “thought”. I mean, why not ask how much you paid for health insurance through your company plan? That’s certainly optional, and you aren’t going to die if you don’t have health insurance. Maybe. Why shouldn’t they count that money? Well, obviously, they should count it. Why not ask how much your couch is worth? You could sell your couch and pay tuition. No one needs a couch. </p>
<p>There has to be a rationale, even if WE don’t necessarily see it. Somewhere, sometime, someone “thought” that it made sense to ask about such and such. And decided not to bother asking about other things, like the couch. </p>
<p>There doesn’t HAVE to be a rationale Why on earth would a single parent get a such a paltry asset protection allowance that isn’t half, or even a third of a married parent? Makes no sense. Why could Trump and Rockefellers be eligible for PELL if they work it that way with an ex? Hole in the system. </p>
<p>Really, most anyone who has a HSA is better off than anyone who does not, as the unpaid qualified expenses are paid for by earmarked savings with before tax dollars. Those who don’t have that HSA, all things equal, pay for it with after tax dollars. </p>
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<p>CPT, where do you see that FAFSA asks to add FSA contributions to your income?
FAFSA explicitly excludes FSA contributions from other untaxed income.
To me it looks like FSA contributions magically disappear on FAFSA.</p>
<p>Princeton PFA excludes FSA from untaxed income as well. Other very generous schools may disregard FSA contributions as well even if CSS asks for it.</p>