If you’re one of the roughly 35 million Americans with a flexible spending account, then mark your calendars and set your alarms for next Tuesday, March 15 — it’s the grace period deadline for spending any remaining dollars in your account from 2015. Leave it alone, and your employer gets to pocket it.
We're not talking pennies. According to Alegeus Technologies, of the people who left a balance in 2015, it was an average of $86. You could use that amount to stock up on sunscreen, Band-Aids, inhalers or even fund a new pair of prescription glasses, says Jeremy Miller, founder and president of the FSAstore.com.
Your FSA is not to be confused with an HSA or health savings account (an account you're allowed to open if you have a qualifying high deductible health insurance plan). An FSA is an account that you fund with pre-tax dollars via paycheck deductions to pay for unreimbursed health care expenses and (sometimes) dependent care expenses and eligible health-related products.
The savings can be significant: An individual in the 25 percent tax bracket who contributes the maximum $2,550 will save almost $640 in taxes. But unless your FSA has a carryover option (more on this in a moment) if you don't use the money you put in, you lose it. Any money you — or your employer — put into an HSA is yours forever. Even if you change jobs or retire, it goes along for the ride.
Not sure if this deadline applies to you? Here’s what you need to do:
Ask human resources or your FSA administrator: Depending on how your employer structures your plan, you could have one of the following:
- A grace period: This is what’s ending next Tuesday — it’s the two-and-a-half additional months from the year-end deadline to use your FSA balance.
- A carryover option: Instead of the use-it-or-lose-it concept, this option allows you to rollover up to $500 of unused FSA dollars into this year’s plan. You can breathe a little easier.
- A run-out period: This option gives you a period of time (typically up to 90 days) past your year-end deadline to get reimbursed for expenses from 2015. This is the time to get any medical bills submitted. So if you went to the dentist on December 21, a run-out allows you to submit bills in 2016 for those 2015 expenses. Be smart and check your plan, adds Jackie Perlman, principal tax research analyst at The Tax Institute at H&R Block. Run-out periods can vary. And note: FSAs can offer either the carryover option or a grace period, but not both.
Squeeze in an appointment or refill prescriptions: An FSA can also be used to pay for medical services, co-pays, prescriptions, deductibles, health-related travel expenses and services that aren’t always covered by the health plan (e.g. dental, vision and chiropractic treatments). Keep any and all receipts when using your FSA in case there are any eligibility disputes down the road.
“It’s not likely you’re going to face any taxable consequences,” says Perlman. “You have to substantiate all medical expenses before getting money from the account.”
Shop with eligibility in mind: If the grace period does apply to you — and there’s money left to spend — then get to it. When it comes to eligibility, a good rule of thumb is to think preventative or medical versus wellness or cosmetic. For example, you can’t use your FSA dollars for teeth whitening (cosmetic), but you can use them for oral products for dentures (cosmetic, but often medically necessary).
Overall, FSA administrators make it hard for you to use your funds on something that’s not fully eligible, says Miller. Try to use your FSA card to purchase the Fitbit, and chances are an FSA administrator will deny it at point of sale. IRS Publication 502 provides a list of eligible medical expenses, but to be sure, check your plan to confirm all of the eligible FSA expenses covered by your employer. Or visit FSAstore.com, which only stocks FSA-eligible products.
--- with Kelly Hultgren