A big shopping deadline is coming up for some people, but it has nothing to do with the holidays.
Millions of people use flexible spending accounts to pay for medical expenses, and some may lose the money left in their accounts if they don’t spend it by the end of the year.
Consider shopping at your local drugstore. There are many ways to use this money that could result in a loss, but it is important to understand the Financial Services Agency’s rules beforehand.
There are several things to consider here.
What is a Flexible Spending Account?
An FSA allows you to set aside money from your pre-tax paycheck to cover a wide range of medical expenses, such as co-pays, deductibles, glasses, and other necessities. These are set up through an employer, and individuals can deposit up to $3,300 into these accounts.
Getting the right amount can be difficult because you have to predict how much care you will need. And if you don’t spend the money by a certain point, it’s gone.
What is the deadline?
These may vary depending on your employer or plan administrator. In some cases, you may lose your money if you don’t spend it by December 31st.
However, many plans offer a grace period in which remaining funds can be used in the new year, or allow participants to roll over a portion of their balance.
“Make sure you understand the clock and the rules,” says David Feinberg of JustWorks, a technology company that provides benefits to small businesses.
There are limits. For example, the IRS limits carryover balances in 2025 to $660. Any amount in excess of that amount may be lost if it remains in your account by the plan deadline.
How can I use my FSA balance?
Let’s think about medical expenses that are not covered by insurance.
The IRS keeps a huge list of eligible expenses for both FSAs and health savings accounts. However, companies can limit reimbursed expenses, so employees should check with their employer.
Eligible expenses include transportation to the doctor’s office, glasses, bandages, sunscreen, condoms, tampons, and more.
FSA funds may be used to pay for things like gym memberships and electric massagers, if you have a doctor’s note that it’s medically necessary.
However, it does not cover things like health insurance premiums or certain cosmetic procedures such as teeth whitening.
Do you have any medical receipts you can submit, such as copays for doctor visits? That would qualify.
Some plan administrators monitor stockpiles. Don’t buy a box of aspirin to use up your balance. Please limit your purchases to one year’s worth.
Products can be purchased in-store or online.
What is an HSA and how is it different?
Health savings accounts (HSAs) also allow you to set aside pre-tax money. The difference is that you don’t lose your balance, you can keep your account even if you quit your job, and some plans let you invest that money.
HSAs can only be combined with high-deductible insurance plans. Account holders can contribute thousands of dollars each year, depending on the type of insurance they have.
The FSA covers more types of coverage. And the assistance they provide can be more immediate. The money you decide to set aside throughout the year is immediately available to you.
Nikki Brown of Health Equity, which manages around 3 million FSAs, said this could help people facing large medical costs, such as surgeries at the start of the year.
Murphy writes for The Associated Press.
