Tax Turkey to Avoid #3: Not using, therefore losing, your medical FSA money
Wednesday, November 27, 2024
Thanksgiving get-togethers can be wonderful. They also can be stressful. And in many cases, literally painful.
There are headaches caused by traffic hassles, anxiety prompted by annoying relatives, indigestion from over eating, and back pain from sleeping on that horrid bed in your parent’s guest room.
The good news is that you can use your flexible spending account (FSA) funds to pay for the Tums, aspirin, or whatever over-the-counter (OTC) remedies make your holiday visit a bit easier.
OTC FSA coverage rules eased: You may remember that for a while you had to jump through hoops to get FSA coverage for these store-shelf treatments. A prior Affordable Care Act (ACA, but still Obamacare to many) rule required you get a doctor's prescription for OTC meds before they were FSA eligible.
Yeah, that definitely was counterintuitive. And frustrating.
Lawmakers finally realized the error of this rule. In 2020's Coronavirus Aid, Relief and Economic Security (CARES) Act, Congress restored the no-Rx-needed use of this tax-free medical account money to cover OTC treatment costs.
Your OTC purchases to get you through this holiday week also are a good way to use up your FSA balance. However, a lot of folks still fall victim to this third Tax Turkey to Avoid and waste their unspent FSA funds.
Popular, and easy, workplace benefit: FSAs are a great workplace healthcare benefit. You put pre-tax money into the account and then use it to help pay some of your out-of-pocket medical expenses.
It's easy to establish. Just calculate how much you'll likely have to come up with for copays, both for doctors' visits and prescriptions, as well as the amount of your employer-provided medical coverage's deductible. If you're planning other costly healthcare procedures, such as your child's orthodontia, add that in, too.
Then have that total automatically taken out of your paycheck in equal installments each pay period.
Since the FSA contributions are made before other paycheck taxes are figured, the amount you put into the account should be offset a bit by your tax savings.
Use or lose FSA funds: However, a medical FSA has one downside. You must use the account money by a certain date or you lose it.
The use-of-lose deadline generally is the end of your benefits year, which in most cases is Dec. 31.
Check with your benefits office about this possible year-end deadline. If you do have to spend all your FSA money by 12/31, you have just more than a month to get to it.
FSA grace period or rollover: Your FSA deadline inquiry also might reveal you have more time to spend the money.
Workplaces that offer these tax-saving medical expenses accounts can choose to let their employees roll over some unused FSA money into the next benefits year. When this option was created back in 2013, the rollover amount was set at $500.
But that amount also is adjusted annually for inflation. For 2024, it’s $640. In 2025, up to $660 in unused FSA money can be carried forward.
Other companies give their personnel a 2½ month grace period to use any of their FSA funds that weren't spent by the end of the regular benefits' year. That's March 15 if your benefits year follows the calendar year.
Again, the leeway for FSA fund usage is voluntary, not a requirement of the employer-provided plans. Also, workplaces can choose to give workers the rollover option or the grace period, not both.
So double check your spending deadline and any potential flexibility on meeting it.
Don't waste FSA money: Whenever your FSA spending deadline is, make sure you meet it. If you don't spend it, your employer gets to gobble up your unused FSA funds. Losing that money is definitely a Tax Turkey you want to avoid.
You can find some ways to spend your tax-favored medical account dollars in my previous posts below —
- 10 unusual but allowable FSA expenditures
- 7 ways to spend your end-of-year FSA funds
- 8 ways to use medical FSA money by Dec. 31
- Items to add to your year-end medical FSA shopping list
- Ways to spend tax-favored FSA money if you're facing 3/15 deadline
Tax Turkeys trot this week: By now you know the routine. This Thanksgiving week, the ol’ blog is featuring a new Tax Turkey to Avoid post each weekday.
The first Tax Turkey to Avoid on Monday, Nov. 25, was Not reviewing and adjusting if necessary your paycheck withholding. Yesterday’s Tuesday, Nov. 26, second Tax Turkey was Not establishing a bunching strategy.
Stay tuned for the final turkeys on Thanksgiving Day, Thursday, Nov. 28, and Friday, Nov. 29.
Until then, save holiday travels and have a wonderful non-taxing Turkey Day!
Advertisements
🌟 Search Amazon Kitchen Products 🌟
The text link above is an affiliate ad. If you click through and then buy a product, I receive a commission.
Comments