Flexible spending accounts allow workers to spend pre-tax dollars on out-of-pocket medical expenses.
76% of companies with 200 or more employees offer FSAs, according to a survey by the Kaiser Family Foundation. These accounts offer many advantages, but the downside is that money in an FSA doesn't carry over from year to year. Here's how to take advantage of these accounts before the year ends.
How FSAs work
During your open enrollment period, typically in November, you indicate the amount you wish to contribute to your FSA. The maximum amount for 2019 is $2,700. You cannot change the amount after the enrollment period unless your employment or family status changes.
The money you contribute to your FSA is tax-free. It's taken out of your paycheck in throughout the year.
You have to spend down the money in your FSA before the end of the year or you lose it. Luckily, FSA money can used for a range of medical expenses.
What can you buy with FSA money?
The most common way to spend FSA money is on out-of-pocket medical expenses, like co-pays and prescriptions. You can also use FSA money on health care products and services, from bandages to acupuncture. If you haven’t gotten your vision checked or had a teeth cleaning this year, FSA money can go toward that.
FSA funds can't be used for drugs without a prescription. To use an FSA for over-the-counter medication, like Advil, you need to contact your doctor for a prescription. You can spend FSA money on items like ice packs, thermometers and blood pressure monitors without a prescription.
Here are examples of other things you can spend FSA money on before the end of the year:
- Birth control
- Fertility testing kit
- Hearing aids
- Weight-loss programs
What’s not included?
You can’t spend your FSA money on everything. Your FSA debit card won’t work, or you won’t get reimbursed for purchases that aren't eligible.
You can’t pay for most insurance premiums using FSA money. This includes life insurance, disability insurance and health insurance premiums.
Here are some things you’ll have to pay for out-of-pocket:
- Cosmetic surgery
- Dancing lessons
- Teeth whitening
- Gym memberships
Check with your FSA provider if you're not sure whether something is eligible. The IRS website also has some guidance.
What if you miss the Dec. 31 deadline?
If you still have money left, contact your human resources department. Many employers allow you to roll over up to $500 from your FSA into the next year or offer a "grace period" until March 15 to spend the money.
If you have a high-deductible health plan, consider getting a health savings account. It’s similar to an FSA but rolls over year-to-year and can generate interest. Learn more about how to set up an HSA here.