End-of-Year Tips to Optimize Your Flexible Spending Account Usage

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The clock is ticking on your Flexible Spending Account (FSA) funds, but strategic action can ensure none of your pretax dollars slip away.

At a Glance

  • The FSA spending deadline of December 31 affects 70% of account holders.
  • In 2022, about half of the account holders forfeited an average of $441.
  • Clear communication and understanding of FSA rules can help in maximizing benefits.
  • Options like partial rollovers and grace periods can offer extended time for spending.
  • Employers play a key role in ensuring efficient use of FSA funds.

Importance of FSA Year-End Planning

December 31 is a critical deadline for approximately 70% of those with a Flexible Spending Account. Unlike Health Savings Accounts, FSAs have a “use it or lose it” policy, highlighting the necessity of strategic year-end planning. In 2022, nearly half of FSA holders forfeited an average of $441 because of missed deadlines. This reflects the need for better understanding and management of FSAs to fully capitalize on their tax-saving potential while covering essential health care needs.

A proactive year-end strategy involves checking for last-minute medical needs that may be eligible expenses. FSAs cover a broad set of healthcare-related costs such as doctor visits, prescriptions, and other medically necessary expenses. By conferring with healthcare providers, account holders can pinpoint exact services and products that the funds can cover before they are lost forever.

Leverage Communication for FSA Efficiency

Communication is crucial in maximizing the effectiveness of FSAs. To improve understanding, HR teams can demystify FSA rules and spread the word through various channels like emails and newsletters. Highlighting specific organizational policies such as partial rollovers, grace periods, and claims run-out periods ensures that employees are aware of their options. A partial rollover allows $640 to be carried over to the next year but prohibits any grace period. The grace period extends the deadline by 2.5 months, offering a potential lifeline for last-minute expenses.

“Use it or lose it.” – Sara Taylor

Particularly important is the claims run-out period, allowing up to 90 days post-plan year to submit receipts for eligible expenses. This provision underscores the indispensability of documentation. Thus, reminding employees to keep thorough records of their healthcare expenses is essential for efficiently claiming reimbursements and safeguarding financial resources.

Utilize Tools and Resources for Financial Resilience

The IRS caps the FSA carryover amount to $660 for the 2025 plan year. Understanding these parameters helps make informed decisions, especially for those facing imminent medical expenses. “Make sure you understand the clock and the rules,” advises David Feinberg of Justworks, emphasizing the importance of informed decision-making for financial resilience.

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

With proactive communication and better resources, employers can genuinely enhance their workforce’s financial well-being and job satisfaction. This highlights their critical role in bridging the comprehension gap and ensuring employees avoid the pitfalls of unused FSAs—a role that ideally alleviates stress related to year-end financial resolutions.

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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