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Health care FSAs allow participants to set aside pretax funds (up to $3,050 in 2023) to pay for qualified health care expenses. Essentially, these plans allow you to deduct these expenses even if you do not itemize. There is 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 after year end, IRS rules allow health care FSAs to either 1) permit employees to carry over up to $610 in 2023 to the following year; or 2) give employees a 2½-month grace period to spend leftover funds. However, employers are not required to offer these options, so be sure to check the terms of your FSA plan.
Related Read: How Tax-Advantaged Health Plans Contribute to Your Financial Well-Being
SPENDING FSA DOLLARS
If you are 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. 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 various items such as 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.
If you have a FSA plan, it is important to understand how the funds will be spent throughout the year so that when the deadline hits, no one is forfeiting any funds.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
