Don’t Miss Out: Key Ways to Use FSA Money Before Year-End

Person typing on laptop with tax-related icons displayed.

The approaching year-end carries an urgent reminder for FSA holders to wisely spend their funds before the deadline imposes irrevocable forfeiture.

At a Glance

  • The FSA spending deadline affects many by December 31.
  • Nearly half of the holders forfeited funds last year.
  • Understanding FSA rules can maximize benefits.
  • Proper communication from employers is essential.
  • Consider extensions but note that funds must be used.

Understanding FSA Deadlines

Flexible Spending Accounts (FSAs) require careful attention to utilize pretax dollars set aside for eligible medical expenses. The critical spending deadline for these accounts is December 31, impacting approximately 70% of participants. In 2022, half of FSA holders forfeited an average of $441 due to unused funds. To avoid forfeiture, understanding the plan year deadlines and the available options is crucial.

FSAs offer substantial tax benefits but are often perceived as complex by many users. HR departments can simplify FSAs by providing clear communications and resources, ensuring employees understand what expenses qualify for FSA use. Eligible expenses include eyeglass purchases, dental cleanings, prescription medications, and more. Navigating FSA spending effectively involves recognizing any extensions, carryover provisions, and remaining mindful that unused funds still face forfeiture.

Strategies for Maximizing FSA Benefits

Employers play a vital role in fetching the best from FSAs for their employees. Conveying essential information about deadlines, organizational policies, and common eligible expenses is part of this process. It is necessary to employ various communication channels such as emails, newsletters, or meetings to deliver this information. Employees are encouraged to develop an itemized spending plan to ensure every dollar intended for medical needs finds worthy usage before time runs out.

Highlighting FSA functionalities like the partial rollover that permits up to $640 to carry over into the new year, grace periods, and claim run-out provisions helps in strategic financial planning. Grace periods can extend the deadline for spending by up to 2.5 months beyond the end of the plan year, while claim run-out periods allow participants to submit receipts for eligible expenses post-plan year end. It is essential, however, for employees to remember these extensions don’t call off forfeitures.

Effective Planning to Avoid Common Mistakes

Employees must pay attention to the fine details of their FSA plans. Recognizing which expenses qualify and preparing to submit reimbursement requests before deadlines is essential. Caution is advised regarding FSA debit card usage to avert potential complications. Employers need to proactively engage employees in understanding these aspects to help them advantageously utilize the funds.

“Make sure you understand the clock and the rules” – David Feinberg of Justworks

Ultimately, effective FSA management not only enhances employee satisfaction but also boosts individual financial well-being. The intersection of informed choices and strategic planning ensures that no valuable resource is left untapped as one year fades into another.

Sources

1. For some FSA dollars, it’s use it or lose it at year’s end

2. Essential year-end tips for maximizing Flexible Spending Accounts

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