There are still several weeks left until the end of 2016, but the countdown to New Year’s Eve has already begun for those of us who have a flexible spending account, or FSA. While these accounts can help stretch dollars, FSA account holders need to understand how this type of account works – and that it has an expiration date.
What is an FSA?
The FSA is a feature of many employers’ benefits packages that can be used to pay for certain medical expenses as well as dental and vision care. The benefit is that, by electing to have an FSA, a person can contribute pretax income to the account each pay period. This helps reduce overall taxable income, which saves money on taxes. Some employers additionally contribute to FSAs on behalf of their employees, as well.
FSA dollars can be used to pay for some medical expenses that insurance doesn’t cover. While the money cannot be used to pay for insurance premiums, it may be used for deductibles, copayments, coinsurance, prescription medications, and dental and vision care.
It’s important to note that FSAs are different than HSAs, or health savings accounts, because FSA money can only be spent in the calendar year in which it was contributed. This means that, when it comes to FSA money, you will…
Use It or Lose It
That’s right – FSA dollars expire December 31 of the year they were contributed to the account. According to IRS rules, employers are unable to return money back to the employee, so once the plan year is over, the FSA dollars are gone. This makes it extremely important to look ahead prior to December to anticipate how to spend money in an FSA account.
There a couple of caveats in which you can get a little extra time to use FSA dollars. Many FSA accounts offer a grace period, where FSA money can be spent up to 2.5 months past the end of the plan year, or a rollover option, where an account holder can move up to $500 to the next plan year’s balance. It’s likely that your FSA has one of these options, but per IRS rules, it cannot have both. Be sure to check your specific FSA plan for details, as plans vary.
FSA Eligible Uses
The FSA is a great way to stretch dollars: for 2016, an individual can contribute up to $2,550 to an FSA. If you’ve put money toward an FSA but haven’t used it much this year, you may feel stuck at this point. Still, there are many ways one can use FSA dollars before the end of the year.
Many things that are considered routine medical expenses – but may not be covered by insurance – are likely to be eligible for FSA use. This includes dental, hearing, and vision, along with associated expenses. In addition, you can use FSA money on medical expenses for your spouse, kids, or other qualifying dependent claimed on your taxes. Grown children who are on your health insurance plan can also benefit from your FSA contributions if they will be 26 or under by December 31, 2016.
FSA Eligible Uses – Vision
In our next blog, we will talk about which Uptown Eye Care services are commonly eligible for FSA payments. If you’ve been meaning to schedule an appointment to use your FSA dollars, beat the rush and contact us today.