As December 31 approaches, it’s crucial for those with Flexible Spending Accounts (FSAs) to plan their year-end spending to avoid losing unused funds.
At a Glance
- The FSA spending deadline is December 31, impacting 70% of account holders.
- In 2022, around half of FSA holders forfeited an average of $441.
- FSAs offer tax advantages but are viewed as complex by many users.
- Understanding carryover and grace periods can help maximize benefits.
Understanding FSAs and Year-End Deadlines
Flexible Spending Accounts allow individuals to set aside pretax earnings for healthcare expenses, such as co-pays, eyeglasses, and prescriptions. However, these funds are subject to the “use it or lose it” rule and must generally be spent by December 31. Approximately 70% of account holders are affected by this deadline, according to HR Executive.
Employers can offer tools and communication to help employees navigate FSA complexities. While FSAs provide significant tax benefits, they can be confusing for many users. HR teams can simplify these accounts by offering clear rules and resources.
Strategies for Maximizing FSA Benefits
Utilizing FSAs effectively starts with knowing what’s covered—common eligible expenses include medical co-pays, prescription medications, dental and vision care, and over-the-counter items. Employees should be informed about partial rollovers and grace periods, which can extend deadlines or allow fund carryover, though these do not prevent forfeitures if funds aren’t used in time.
“Make sure you understand the clock and the rules” – David Feinberg of Justworks
Providing online portal access or direct communication for balance and eligibility information can further aid FSA utilization. Employers play a critical role in reminding employees about deadlines and documenting expenses for reimbursement claims, especially as some companies offer grace period benefits until March 15 of the following year.
Thanks to @ShakeriaHawkins, #CatTorres, and @KTNV for featuring @FSAstore in this segment about maximize #FSA and #HSA funds. Watch and learn how to avoid losing funds to the 12/31 deadline: https://t.co/GuEfo11Uq7
— FSAstore.com (@FSAstore) December 10, 2024
Communication and Planning Key to Avoiding Forfeitures
Proactive communication is essential for employees to make the most of their FSAs. Employers should utilize newsletters and emails to share key deadlines and potential extensions. Highlighting organizational policy details like claims run-out periods or carryover allowances can prevent unwanted forfeitures.
Finalizing year-end healthcare plans involves understanding deadlines and preparing for eligible expenses. With thoughtful strategies, holders of FSAs can maximize their benefits, protecting themselves from forfeiting valuable funds while improving their overall financial health.
Sources
1. Essential year-end tips for maximizing Flexible Spending Accounts
2. For some FSA dollars, it’s use it or lose it at year’s end
