If you have money left over in your health-care flexible spending account, now is the time to make a plan on how to spend it before you lose it.
Health-care FSAs allow workers to set aside pretax dollars for qualifying expenses. However, they are generally “use-it-or-lose-it” accounts, which means that unless your company provides a grace period or allows you to carry over some funds into the next year, the standard deadline to spend the money is December 31 of the year in which you make the contributions.
According to FSAStore.com, households spend an estimated $1,600 each year on health care products that could be purchased using FSA dollars. This means that even if you don't have medical needs to spend the funds on, you're likely to find a way to use the money on things you'd end up buying anyway.
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"If you have an FSA, we urge you to check your balance today and make plans for spending your remaining funds before time runs out," said Shawna Hausman, chief marketing officer of Health-E Commerce, parent company of FSAStore.
This year, the contribution limit to FSAs was $2,850, and in 2023 it will be $3,050.
According to the Employee Benefit Research Institute, about a third of companies provide a 2.5-month grace period to spend the money, and 42% allow you to roll over a limited amount to the next year. At the remaining 23% of companies, you forfeit funds remaining in your account after Dec. 31.
However, just because you're allowed to roll over funds or get a grace period doesn't mean you'll avoid forfeiture.
According to the Employee Benefit Research Institute (EBRI), nearly half of all workers who are allowed to roll over money into a new year forfeit all or part of it. For those with a grace period, that share is 37%. Additionally, 48% with a traditional December 31 deadline forfeit money as well.
Hausman warned that account holders could lose an estimated $1 billion if they don't meet the Dec. 31 deadline.
The list of eligible expenses that qualify for FSA money has been expanded, due to congressional action in 2020. For starters, over-the-counter drugs no longer need a prescription to qualify. This includes things such as cold medicines, anti-inflammatories and allergy medicine.
Additionally, menstrual care products and items that have become pertinent during the pandemic, such as at-home Covid tests, masks, and hand sanitizer, are now eligible for reimbursement.
Other products that qualify for FSA reimbursement include sunscreen, thermometers, eyecare products, baby monitors and pregnancy tests. You can check FSAstore.com for a complete list of eligible items.
The IRS does not allow stockpiling of food items, which means that you can only purchase enough of a product to last you through the current tax year. However, the specifics of this rule are determined by administrators of the FSA (Farm Service Agency).
If you're unsure about the rules for your FSA, contact your company's human resources department. You can also check your company's online FSA portal for more information. There should also be a phone number on the back of your FSA debit card that you can call.
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