FSAs: Use them, don't lose them
Do you have a flexible spending account (FSA) for health care expenses? If so, now’s a good time to check your balance and take steps to avoid forfeiting funds at the end of the year.
Health care FSAs allow participants to set aside pretax funds (up to $2,850 in 2022) to pay for qualified health care expenses. Essentially, these plans allow you to deduct these expenses even if you don’t itemize. There’s a catch, though: An FSA is a “use it or lose it” proposition. Funds remaining in the account at the end of the year are forfeited.
To provide employees with some relief from possible forfeiture, IRS rules allow health care FSAs to either 1) permit employees to carry over up to $570 in 2022 to the following year, or 2) give employees a 2½-month grace period to spend leftover funds. However, employers aren’t required to offer these options, so be sure to check the terms of your FSA plan.
Spending FSA dollars
If you’re at risk of losing FSA funds, try to spend them well before the deadline. You may be surprised by the wide range of covered expenses, which now include over-the-counter medications, COVID-19 supplies (tests, hand sanitizer, masks, etc.) and menstrual supplies. Stocking up on these items can be a great way to use your FSA funds. Other qualified expenses that people may not know about include DNA kits and ancestry services, massagers and heating pads, orthopedic shoe inserts, and certain skincare products.
It pays to review a list of FSA-eligible items for ideas on how to use your account balance before time runs out. You may find many items that you regularly buy on the list, such as contact lenses. It may also be possible for the FSA to reimburse you for expenses you already incurred earlier in the year.