Many flexible spending account holders may have more money than they think this year, thanks to Covid-related rules. That's why it's more important than ever to check your balance and make an FSA spending plan before you risk losing some or all of your funds.
An FSA is an account offered through your employer that lets you pay for many out-of-pocket medical expenses with tax-free dollars. Allowed expenses include insurance copays and deductibles, qualified prescription drugs, insulin and medical devices.
You decide how much to put in an FSA, up to a limit set by your employer.
Typically, the deadline to use your FSA money is Dec. 31 of the year in which you make the contributions.
However, some companies offer other options. If money is left at the end of the year, the employer can offer one of two options, although not both:
- Two-and-half more months to spend the left over money
- Carry over up to $500 to spend the next plan year.
About a third of companies provide a grace period to spend the money, according to the Employee Benefits Research Institute. And 42% allow you to roll over a limited amount to the next year. The rest adopt a use-or-lose policy in which you forfeit funds remaining in your account after Dec. 31.
Don't Lose Your FSA Funds
EBRI says about 50% of account holders carried a balance as of March 15, 2019. The average forfeiture was $360. By March 15, 2020, 48% of workers carried a balance, and the average balance was $409. But some folks were able to keep some of those funds.
The 2020 CARES Act allowed participating companies to both extend the grace period and offer rollovers. The temporary rules allowed the grace period to last a full year and removed the limit to how much you could roll over. The rules stayed in place through 2021. However, those provisions are set to expire this year.
"If you are working for an employer that allowed a rollover, make sure that you're not accidentally sitting on a pile of thousands of dollars of unused funds," said Jake Spiegel, an EBRI research associate.
Contribution Limits For 2023
The limit for 2022 FSA contributions was $2,850. The IRS has raised the cap for 2023 to $3,050. If you're allowed to roll over unused funds into next year, the limit will be $610.
So it's possible you have much more money in your account than you thought, with very little time left to spend it. So whether it's over-the-counter flu remedies or hospital copays for elective procedures, now's the time to find out how much money you have in your FSA account and how to spend it.
Keep in mind though that medical providers may be slammed during the next seven weeks and may not be able to handle a crush of elective year-end procedures, says Ocala, Fla.-based certified financial planner Barbara O'Neill.
"In addition to workers spending down their FSA balances, some other workers may be rushing to get things done if they have already satisfied their 2022 health insurance deductible," she told IBD. "An FSA grace period to mid-March 2023 will help with FSAs, but workers still need to develop a spend-down plan."
How To Spend Your FSA Funds
What to do now? Check your balance and plan policy. Then scan the IRS list for what you can spend FSA funds on. The IRS added many items to the eligible list over the pandemic years. Masks, hand sanitizer and Covid tests are new to the list, among many other items.
If you have thousands of dollars left to spend, pricier products like humidifiers and blood pressure monitors also qualify. Spiegel, who says he suffers from asthma, bought an air purifier with some of his FSA funds.
"You can stock up on sunscreen if you're going on vacation," Spiegel suggested.
The FSA Store's website offers a convenient way to shop for eligible items, although some items might cost less on other sites. Amazon lets you filter your searches for FSA eligible items. It could even be worth a visit to a brick-and-mortar store. So shop around.
But don't go on a shopping spree just yet. Stockpiling on dozens of boxes of Advil or Band-Aid is not allowed. You can only buy what you'd reasonably consume by the end of the year, according to the FSA Store website.
"Buying any more than three of the same item could be considered 'stockpiling' " according to the FSA Store. "The best way to avoid stockpiling is to spend down your FSA balance before you get to the month of December when the mad scramble to use your benefits tends to hit the hardest."
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
