Use up FSA dollars now
WASHINGTON (11/24/15)-- If you’re looking to use up flexible spending account (FSA) funds, now is a good time to make some doctor’s appointments and stock up on eligible items (Kiplinger Nov. 18).
An FSA is an employer-sponsored plan that sets aside pretax dollars from your paycheck into a special savings account. FSA contributions are deducted in equal increments throughout the year, and can be allocated toward medical, pharmacy, dental or dependent care costs.
You can claim health-care FSA funds for qualifying out-of-pocket medical and dental expenses, such as co-pays, deductibles, eyeglasses, braces and Lasik surgery.
You can put up to $2,550 in an FSA each year. You generally have to use up that money within that calendar year. Some employers offer additional options, but cannot offer both:
- Providing a grace period of up to 2 1/2 extra months to use the funds; and
- Carrying over up to $500 to use the following year.
Maximize your FSA benefits:
Be mindful of use-it-or-lose-it rules.The use-it-or-lose-it provision states that you forfeit any FSA money that you don’t spend by your employer’s deadline, which is typically year-end;
Track expenses.Often the best indicator of future out-of-pocket expenses is previous out-of-pocket expenses. Use the member portal that your medical, pharmacy and dental insurance carriers provide, if applicable, where you can track past years to plan for future expenses;
Review any changes in out-of-pocket costs.Review any increases or dips in health-insurance premiums, deductibles, co-pays and out-of-network charges. Consider these changes when setting contribution amounts;
Review the complete list of eligible expenses.With your doctor’s authorization, you might be able to claim expenses such as weight-loss program fees, travel costs to counseling meetings, or items such as sunscreens with an SPF 30 or higher. For a complete list of eligible expenses, visit irs.gov;
Know what’s covered. You can use FSA funds for over-the-counter drugs (OTC) with a doctor’s prescription. To use FSA funds for OTC drugs, you must have a prescription, even if it is just for allergy medicine or throat lozenges, for example. If you don’t have a prescription or letter of medical necessity from your doctor, you cannot allocate FSA funds toward the purchase; and
- Understand tax laws.If you use a health-care FSA to pay for eligible health-care expenses, you cannot also deduct those expenses on your federal income tax return if you itemize.
For related information, read “Interest Deferred: Beware Zero-Percent Medical Credit Cards” in the Home & Family Finance Resource Center.