Military to offer tax-saving health care accounts for military

Service members will have another way to save money on their taxes in 2025, as defense officials are working to offer health care flexible spending accounts.

Defense officials are currently coordinating with the Office of Personnel Management and aim to offer these accounts to eligible service members by Jan. 1, 2025, said Susan Mitchell, executive director of the Department of Defense Tax Council, and the Armed Forces Tax Council.

As with the DoD’s new dependent care flexible spending accounts, enrollment for the new accounts will take place during this year’s open enrollment season from mid-November to mid-December, possibly from November 11 to December 9.

Participants can save an average of 30% on these unreimbursed expenses, according to the federal Flexible Spending Account program known as FSAFEDS. The savings depend on each individual’s tax situation.

The federal Flexible Spending Account Program, which also administers service member dependent care flexible spending accounts, is sponsored by the Office of Personnel Management.

Eligibility rules will likely be similar to those for dependent care flexible spending accounts for service members, Mitchell said — service members in the active component and active Guard Reserve members in Title 10 orders.

These health care flexible spending accounts, already available to Defense Department civilians and many private sector employees, will allow service members to set aside pretax dollars in the account. The money can be used to help pay for health care expenses not covered by Tricare or other health care. The maximum amount that can be set aside each year depends on the Internal Revenue Service’s annual contribution limit. In 2024, for example, the maximum is $3,200. The minimum is $100.

“While Tricare provides health insurance for service members and family members, health care flexible spending accounts can help reduce the cost, burden of paying out-of-pocket health care expenses,” Mitchell said.

Pretax dollars are deducted from the service member’s gross pay and deposited into the account.

The service member can then submit health care receipts for co-pays for prescription and health care visits, orthodontia, contact lenses, eyeglasses, prescription sunglasses, in vitro fertilization and more. Many over-the-counter items and medications such as sunscreen, bandages and hearing aid batteries, antacids, allergy medications, cold medications and aspirin and other pain relievers are eligible expenses with itemized receipts.

Family advocates applaud the offering of health care flexible spending accounts.

“One of our goals is to reduce out-of-pocket costs for service members and families,” said Eileen Hauck, senior deputy director of government relations for the National Military Family Association.

However, she said, “where people can point to HCFSA as a reason for increasing health care costs.”

Mitchell advises service members and families who may be interested in participating in a health care flexible spending account to start tracking their unreimbursed health care expenses to get an estimate of how much they spend in a typical year. Information and calculators are available at FSAFEDS.com

More information about the Department of Defense’s special program will be available later in 2024.