Putting money into a flexible spending account is a smart way to reduce your taxable income. Now more companies are giving workers additional time to spend their 2018 funds—but the deadline is coming up.
An FSA must be sponsored by an employer, so you’ll have one only if you have job-based health insurance. In the past, employers commonly had a use-it-or-lose-it policy requiring you to spend the money by Dec. 31.
But in a growing trend, more companies are giving workers a grace period that extends spending deadlines till March 15. Now 37 percent of companies give FSA users that mid-March deadline to spend 2018 FSA money on eligible expenses, up from 32 percent in 2017, according to the Society for Human Resource Management’s annual employee benefits report (PDF).
Whether your deadline for FSA spending is Dec. 31 or March 15, you have until Mar. 31 to submit the claims for that spending.
So if your company is giving you more time and you haven’t spent all your FSA funds from last year, make sure to use the money soon. With an FSA, you put pretax money away to spend on qualifying medical expenses not covered by your health insurance.
That means you never pay taxes on the money from the FSA you spend for eligible healthcare costs. In 2018, you could fund up to $2,650 in an FSA. In 2019 you’ll be able to put away an additional $50, for a total of $2,700 pretax dollars. If you’re in the 24 percent tax bracket, you’ll avoid $648 per year in taxes if you put away the maximum amount. You can estimate your savings with this calculator offered by WageWorks.
If you have job-based insurance, you’re likely to have an FSA option. Half of all firms with 25 or more workers that offer health insurance offer it, and among companies with 200 or more employees, three-quarters provide FSAs, according to the Kaiser Family Foundation’s 2018 Employer Health Benefits Survey.
Here’s what you should know to get the most out of your FSA.
What You Can Spend FSA Money On
People often rush at the end of the calendar year to make doctor’s appointments (copays are an FSA-eligible expense). Buying eyeglasses and going to the dentist in December are also common ways to use up the funds. But the list of what you can pay for (PDF) with FSA money is long, and if you have extra time to spend the funds but not enough time to get a doctor’s appointment, you can use the money up by simply making a trip to the drugstore. Items such as arch supports, breast pumps, and other medical devices are eligible. So are lip balm and sunscreen.
And if you have a prescription or a doctor’s note, there are additional items and treatments that are covered, such as acne medicine and sleep aids.
An easy way to see what qualifies is to go to FSAstore.com. Everything sold on the site is eligible for FSA dollars, and items that need a doctor’s approval are clearly marked.
FSA vs. HSA
Your employer may also offer a health savings account (HSA), another way to put away pretax money for future healthcare costs.
An HSA is an option only for people with a high-deductible health plan (HDHP), which have an individual deductible of at least $1,350 per year, or $2,700 for a family. A deductible is the amount you must pay before insurance begins to cover some of your healthcare bills. (Some preventive services are covered at 100 percent before the deductible.) You can’t have both an HSA and an FSA with employer insurance.
But an HSA is more flexible than an FSA. Unlike an FSA, there is no deadline to spend the money in the account, and if you leave your employer, the account goes with you. You can put more in an HSA, too: up to $3,500 annually for individuals or $7,000 for families in 2019. You can contribute an additional $1,000 per year if you are 55 or older.
Employers don’t have to set up HSA accounts for their employees in high-deductible plans, but about half of those that do set them up make a contribution to the account. You can also choose a different HSA if you don’t like your employer’s option. And if you buy your own insurance and have a high-deductible plan, you can always open one on your own.
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