The Medical FSA is more advantageous for most people because of the following reasons:
- On your tax return, your eligible medical expenses will need to exceed a minimum threshold set by the IRS before you can deduct any expenses and receive tax benefits. With a Medical FSA, the first dollar you spend on eligible medical services will be tax-free.
- On your tax return, eligible medical expenses are exempt only from income taxes. The funds in your Medical FSA are exempt not only from income taxes but also from FICA tax.
Note: If your eligible expenses exceed the minimum threshold by a significant amount, you should consult a tax professional to determine which method is better for you.