If you have a flexible spending account, you may be subject to a Dec. 31 use it or lose it deadline. Here’s what you should know!
If you have a Flexible Spending Account (FSA), you might need to act fast and spend the funds before the use it or lose it deadline. According to FSA Store, an online retailer specialized in FSA-eligible products, about 70% of FSA holders must use their funds by December 31.
FSAs allow you to set aside pre-tax income to pay for eligible medical or dependent care expenses. However, unlike Health Savings Accounts (HSAs), which are tied to high-deductible health plans and don’t have spending deadlines, most FSAs require you to use the funds by a specific date.
Some FSAs provide a grace period, allowing you to spend remaining funds until two and a half months after the end of the plan year. Others may let you carry over up to $640 of unused funds into the next year. However, many plans don’t offer these options, according to Rachel Rouleau, chief compliance officer at FSA Store. So, if yours requires you to spend all your funds by December 31, it’s crucial to monitor your spending and use up the balance in time, Rouleau advised.
In 2024, employees could contribute up to $3,200 to their healthcare FSA accounts. On average, households contribute $2,250 annually, $1,820 from personal contributions and $430 from employers, according to data from Numerator, a market research firm.
Make the Most of Your FSA Funds
FSAs are most commonly used for dental and vision care (67%), prescription medications and treatments (65%), and medical services or procedures (64%), according to Numerator. Many products, like acne treatments, pain relievers, and allergy medications, are eligible for reimbursement. However, not all healthcare expenses qualify.
Ineligible expenses typically include cosmetic procedures and weight loss programs, unless prescribed by a doctor for a specific medical condition, according to Nicole DeRosa, a certified public accountant at SKC & Co.
For clarification, DeRosa recommended checking the IRS Publication 502, which lists qualified expenses. She noted that many overlooked items, such as expenses for service dogs (including food, grooming, and veterinary care), are eligible. However, these benefits don’t extend to emotional support animals.