If you have a Healthcare Flexible Spending Account, you may be familiar with the Use it or Lose It concept. What exactly does this mean for you? As you approach the end of the year, focusing on your Healthcare Flexible Spending Account now may help save you money before it’s too late.
A Healthcare Flexible Spending Account, or “FSA,” is a pre-tax benefit account that you can use to pay for eligible medical, dental, and vision care expenses that aren’t covered by your health insurance plan. Additionally, the IRS who determines eligible expenses allows for reimbursement of expenses of many other healthcare related items if not reimbursed by your insurance plan.
You decide how much to contribute to your Healthcare FSA each year, and funds are withdrawn automatically from each paycheck for deposit into your account before taxes are deducted. The total amount you elect to contribute to your Healthcare FSA each year is available on the first day of your plan year. The benefit of a Healthcare FSA is two-fold: first, you lower your taxable base salary meaning you reduce the amount of tax paid, which then provides you more take home pay; and second, you pay for eligible healthcare items using pre-tax dollars.
The IRS determines the annual maximum contribution allowed, with employers determining whether to allow you to contribute that full amount or not. The annual IRS contribution limit to a Healthcare FSA in 2020 is $2,750.
Deadline to spend the funds?
Generally, you need to spend the funds in your Healthcare FSA within the plan year which constitutes the 12-month calendar year. However, your employer may provide you a grace period of 2-½ months after the end of the plan year to spend funds left in your account. Or your employer may allow you to carry over up to $500 left in your account into the next plan year.
If you have unused funds in your Healthcare FSA on December 31, you can use out-of-pocket expenses incurred through March 15 of the following calendar year to claim and get reimbursed for those unused funds. The claim filing period may be March 31 or April 30, best to check with your employer or the FSA vendor. After March 15, the unused funds are forfeited.
If you have unused funds in your Healthcare FSA on December 31, up to $500 will rollover into the next calendar plan year. The $500 can be used to cover any eligible expense throughout the next calendar year, so you don’t lose it per se. The $500 rollover would be added on to any new Healthcare FSA goal you contribute to for that new calendar year. In 2020 the HCFSA contribution limit is $2,750. If you carried over $500, you would then have $3,250 available to claim in 2020, for example.
Get the Full Annual Goal Amount Back right away
One of the great features of a Healthcare FSA is the ability to get reimbursed for your full annual contribution goal before you’ve actually contributed the full amount through payroll contributions.
Say you set an annual Healthcare FSA contribution goal of $2,750 for the 2020 calendar year, and then get medical treatment on January 30 with an out of pocket of $2,750 (possible you had to meet your deductible first and pay 20% coinsurance). You could use the full $2,750 from your Healthcare FSA in February 2020 even though you haven’t contributed the full amount yet. Your employer will not come after you if you happen to leave the company later than year. One the flip side, there’s a small number of people in a plan who forfeit their Healthcare FSA balance. Therefore, it’s almost a wash for the plan. The employer tends to benefit as any forfeited amounts go back to the plan to help offset administrative costs associate to run the plan.
Still Have FSA Funds with a Prior Employer Account?
If you had a healthcare Flexible Spending Account with a prior employer, and then enrolled in a Healthcare FSA with a new employer, unused funds from that prior employer account don’t rollover into the new FSA. Typically, once you leave an employer the prior Healthcare Flexible Spending account funds expire and cannot be used for expenses with dates of service after the last day that plan was in effect. More importantly, those funds typically have a claim filing date which may be 2 ½ months into the calendar year.
Best advice is to spend any unused Healthcare FSA dollars prior to the termination date of that account.
Have Unused Funds to Spend?
The FSA Store (https://fsastore.com/) is a great option if you need to spend your Healthcare FSA dollars, especially if it’s near the end of the calendar year and you don’t expect to have any further healthcare expenses like visits to the doctor, dentist or vision provider to claim.
- Items listed for purchase are already approved by the IRS.
- You can use your Healthcare FSA debit card to purchase items.
Log into your Flexible Spending Account or call your FSA vendor for assistance.
Visit the IRS website to learn more about eligible FSA expenses https://www.irs.gov/forms-pubs/about-publication-502 .
Contact the Human Resources or Benefits team at your employer for support.