Flexible Spending Accounts — Use it or Lose it
For many people participating in a Flexible Spending Account (FSA) with a grace period, March 15th marks the deadline to incur expenses and use dollars set aside in an FSA. After that time, any remaining pre-tax dollars will be forfeited. Most employers traditionally give you 90 days after the end of the plan year, or until March 31 of the next year, to submit receipts for costs incurred in the previous year. And, if your employer offers you a grace period to incur expenses, this claim submission period may also have been extended. So check with your employer to see how long you have to shop and how much time you ultimately have to be reimbursed for last year's eligible expenses.
A health FSA is a tax-advantaged account that can be used to pay for medical expenses not covered by insurance. Gaining in popularity, FSAs, along with other consumer-directed health funds like Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs), are designed to give you more control over your health care dollars, and can greatly impact your overall financial health. Plan for Your HealthSM helps you make the most of your health benefits by showing you the ins and outs of your plan's offerings, including FSAs.
Contributions to FSAs are typically made by employees and are free of federal and most state taxes. The funds — which are not portable (say, if you should switch jobs) and don't accrue interest — have helped millions of Americans save on health care costs, but they come with one important rule: if you don't use it, you will lose it.
For some, the "use it or lose it" rule can be frustrating. The FSA funds that are not used in the year they are accrued go back to the employer. But the IRS allows employers to give employees a grace period of up to two and a half months from the end of the FSA plan year — for plans ending December 31, 2008, they may have until March 15, 2009 — to spend unused money in their FSAs. Eligible expenses incurred during this grace period can be applied to the prior year remaining FSA balance, and the additional time can be made available for both health FSAs and dependent care reimbursement accounts. Ask your employer if this option applies to you.
Here are some examples of how to make the most of your FSA dollars:
- Stop by the drugstore: Health FSAs cover over-the-counter medications, from aspirin to cough medicine to eye drops. Note, however, that vitamins are not covered (they're classified as general nutrition) unless you have a letter of medical necessity from a health care provider.
- Take care of your eyes: Purchase over-the-counter eye care products such as contact lens solution. If you already have eye glasses, use your FSA balance for prescription sunglasses.
