Do Flexible Spending Accounts (FSAs) Expire?

A flexible spending account (FSA) is a type of tax-advantaged financial tool which some employers offer to their employees to help offset their medical costs using pre-tax dollars. FSAs are similar to Health Savings Accounts (HSAs), but FSAs are available only to those employed by a company, while self-employed people have access to HSAs.

Key Takeaways

  • A flexible spending account (FSA) is a type of tax-advantaged savings account that allows people to save money to use for healthcare expenses not covered by their insurance.
  • Employers may offer FSA accounts to their employees as a benefit.
  • Usually, money deferred into an FSA during a calendar year is forfeited if it is not used by the expiration deadline.
  • The rules changed due to the COVID-19 pandemic, but only for tax years 2021 and 2022.
  • For 2022, the maximum salary reduction a person can put toward an FSA is $2,850. In 2023, the maximum rises to $3,050.

FSA Expiration Dates

Employees who have an FSA contribute a set amount each paycheck from their gross pay. The contributions are tax-free as long as the funds are used for qualified medical expenses. The Internal Revenue Service (IRS) defines a qualified medical expense in Publication 502.

FSAs expire. They are a "use it or lose it" type of plan, and funds left in the account disappear if not claimed by the expiration date. The expiration dates were eliminated during the COVID-19 pandemic, but only for the 2020 and 2021 tax years.

In 2022, the maximum salary an employee can deposit in an FSA was $2,850. The amount increases to $3,050 for 2023.

FSA Grace Period or Carryover

Usually, money that goes unused in an FSA account is forfeited at the end of the calendar year (except for the COVID-19 changes for 2021 and 2022). But some plans offer a grace period or acarryover.

A grace period is a set amount of time during which the employee may submit a claim beyond the calendar year. This is usually about two to three months. Once the grace period expires, any unused balance is forfeited.

Some FSA plans offer a carryover period. This allows up to $550 to be used for the following year's expenses. The plan specifies this limit, which may be less than the maximum of $550.

Use Your Funds by Year's End

If you're caught off guard by the clock, the last days of the year are a great time to use up your funds. There are many options for spending the money even at the last minute, from stocking up on eyecare supplies to stocking up on over-the-counter health products. Some FSA plans cover household health supplies, first aid kits, bandages, and even travel sickness bands.

First, check your company's list of FSA-eligible expenses or an online source of commonly-covered items. Hundreds of products are available at any of several online stores that specialize in FSA-eligible products.

Even better, call your doctor or dentist to book any appointments you've put off. FSAs cover both.

Is Having an FSA a Good Idea?

If your company offers an FSA there are a couple of good reasons to take it.

First, it's a small but useful tax break. In 2023, you can subtract up to $3,050 from your taxable income by tucking it away in an account that you can use for many routine expenses.

It's also a good way to set aside some money to use for uncovered insurance costs, like copays.

The only downside is that expiration date. Make a habit of checking your balance towards the end of the year and use it up before it disappears.

Who Is Eligible to Have an FSA?

Only employees of a company that offers an FSA are eligible to have this type of account. Self-employed people aren't eligible. If you work for a company that doesn't offer an FSA, you might contact Human Resources and ask why. Since it's your money going into the account, it doesn't cost the company much to offer one.

What Can I Buy Using My FSA Account?

The list is long and includes many common household products that you would need to buy anyway, like sunscreen and aspirin. In addition, it includes dental costs, which company insurance typically doesn't cover or covers only in part. You can buy a new pair of prescription glasses or contact lenses, too. There are a number of odd related expenses that are covered, like car mileage to and from medical appointments.

The Bottom Line

FSA plans vary from employer to employer. You need to check how your company's plan works.

Expiration dates vary, and not all accounts have a grace period or a carryover period. Reviewing your plans annually, either by meeting with an HR representative or calling the plan's provider, is a smart way to ensure you use your plan to its full advantage.

If you plan on leaving your job, don't leave any money in your account. It often reverts to your employer.

Article Sources
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  2. Internal Revenue Service. "New Law Provides Additional Flexibility for Health FSAs and Dependent Care Assistance Programs."

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