Do you have a flexible spending account for your health care needs? If you do, here's a friendly heads-up: You'd better check and see how much money is left in it. You're starting to run out of time to spend it. Tick tock!
FSAs are 'use it or lose it' accounts, so you lose any money you haven't used by the end of the year. The federal government helpfully relaxed those rules in 2020 and 2021, allowing employers to extend spending deadlines by up to a year. That's because lots of people put off in-person doctor visits during the COVID pandemic.
But now that grace period is expiring and the rules are returning to normal, so there's a hard deadline at the end of the year once again. Don't let it catch you by surprise.
What's a Flexible Spending Account, or FSA?
A flexible spending account lets you set aside pretax money for medical and dental care that insurance won't cover. Employers take money out of paychecks to fund the accounts, which are regulated by the IRS. A third party usually administers the accounts and handles reimbursements.
This is important: An FSA is different from an HSA, a health savings account. An HSA is also a tax-advantaged account you and your employer can contribute to in order to pay for eligible medical expenses using pretax dollars.
The main difference? You can only establish an FSA with your employer. This means your employer â€" not you â€" owns your FSA account. If you leave your job, you lose your FSA funds.
The biggest advantage of an FSA is that all your funds are available immediately the day you enroll. Even though you haven't paid in yet, the full contribution amount you elected during open enrollment is accessible to spend on health expenses at the beginning of the year.
The biggest drawback to an FSA is the 'use it or lose it' factor, meaning you lose whatever money you don't use up by the end of the year.
If FSA money is left in your account at the end of December, your employer can offer one of two options:
- A 2.5-month grace period to spend the leftover money.
- A carryover of up to $500 to spend the next plan year.
Or your job can choose to terminate any remaining funds when a new year starts. It's totally up to your employer. It's not up to you.
You'd Be Surprised What Your FSA Can Pay For
Most of us use our flexible spending accounts to pay for doctor visit copays or medications whose cost isn't completely covered by our health insurance.
But that's not all your FSA is good for.
The IRS has a handy list of medical supplies and services covered by your FSA for preparing your tax returns.
You'll find even more supplies when you search for FSA-eligible products and services at FSAStore.com or by searching for FSA-eligible products on Amazon.
Here's a selection of stuff that you might not have known your FSA can pay for:
- Eyeglasses
- Contact lenses
- LASIK eye surgery
- Feminine hygiene products
- Allergy testing
- Acupuncture, visits to an osteopath or tune-ups by a chiropractor
- Reproductive services for men and women, including sterilization, vasectomies, lactation expenses and fertility enhancement procedures
- Pregnancy test kits, birth control pills or post-mastectomy breast reconstruction
- Expenses for service animals, including training fees, pet food and veterinary care
- Even sunscreen!
The Bottom Line
It may seem like the end of the year isn't that close yet. But don't wait until it's too late.
Decide now how you want to spend the rest of your FSA money.
Use it. Don't lose it.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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