It’s Dec. 1 and Renee is starting to panic.
“I don’t want to lose any of my FSA money. When is the deadline? What expenses are covered? How much money do I have left to spend? I have to find a way to spend this money … fast! Where do I go to find my balance information?”
Renee’s concerns aren’t unique. She is among the 35 million account holders who made tax-smart allocations to their flexible spending accounts for 2014. She’s also among the 51 percent who wait until December to spend their FSA dollars.
But even though employers have offered FSAs as part of their benefit plans since the 1970s, plan design options have changed. In 2013, the U.S. Treasury Department and IRS made some changes to FSAs that make the plans a bit more flexible. These changes to the “use it or lose it” rule give employers an option to let employees carry over up to $500 in unused FSA dollars to the next plan year, or to offer a grace period – a two-and-a-half month extension to spend remaining FSA money.
Deadlines and terms
Dec. 31 is a big day for FSA holders. For many, this could be the last day they’re allowed to spend their FSA funds on eligible expenses — or risk forfeiting their account balance to their employer. This is commonly known as the “use it or lose it” rule associated with this year-end deadline.
Under the new regulations, 2013 was the first year employers could consider a menu of FSA plan options to extend that deadline, giving employees more time and flexibility. Those options include:
1. Carryover (or rollover) option: If an FSA plan includes this, employees can carry over up to $500 of unused FSA dollars to next year. Employers determine the carryover amount.
2. Grace period: If a plan includes a grace period option, employees have an additional two-and-a-half months beyond Dec. 31 (until March 15) to spend unused FSA dollars.
3. Run-out period: If a plan includes a run-out period, employees have additional time beyond the year-end deadline to submit reimbursement requests for eligible expenses — but only if those expenses were incurred during the plan year. The run-out period is usually 90 days, which would make March 31 the last day to submit receipts and reimbursement requests.
Employers can offer the carryover option or a grace period — but not both. They’re not required to offer any of these options, but if a plan includes an extended deadline, employees have more time and flexibility in how to use their accounts and meet changing health needs.
According to Alegeus Technologies, in 2015, there likely will be even higher FSA enrollment due to the carryover change. Alegeus enrollment data showed 8 percent of employer groups adopted the carryover for 2014 FSA plans, but that’s anticipated to increase. The carryover feature eases concerns consumers might have about losing their money.
Using — not losing — account dollars
Once employees know deadlines for spending FSA funds, they can focus on using their accounts to purchase eligible expenses that make sense for them and their families.
Let’s go back to Renee. Frequent and consistent communications from her employer are key to ensuring that she, and employees like her, make the most of their FSA and don’t risk losing their money.
Sharing these three spending tips will help her have a frenzy-free December and stay in control of her FSA dollars:
- Know what’s FSA-eligible. Check your plan guidelines to learn which products and services can be purchased with FSA account dollars. There are thousands of products you can buy with an FSA, and you also can use an FSA to cover co-pays, deductibles and coinsurance for different medical services.
- Use your FSA debit card, online or in person,if your employer offers one. FSA debit cards are convenient, and FSA money will be automatically deducted when using your card — so there’s no waiting for reimbursement for out-of-pocket expenses you incur.
- Keep track of your FSA account balance. If your employer offers an account tracker or calculator, take advantage of it so all of your available FSA dollars are used before deadlines.