Unlock the Secret Benefits of Your Flexible Spending Account Before Year-End

"Tax letters with spilled jar of coins."

With the FSA year-end deadline looming, strategic spending can save your money from forfeiture.

At a Glance

  • The FSA spending deadline is December 31, impacting 70% of account holders.
  • In 2022, approximately 50% of FSA holders lost an average of $441 in unused funds.
  • Employers should communicate FSA options and rules clearly to employees.
  • Strategic use of FSA funds includes stocking up on prescribed medications and scheduling necessary medical appointments.

Understanding the “Use It or Lose It” Rule

The year is drawing to a close, which means individuals with Flexible Spending Accounts (FSAs) must prepare for the December 31 spending cutoff date. The urgency stems from the “use it or lose it” stipulation, a rule that often confounds users. Last year, about half of these account holders lost an average of $441 each in unused funds. FSAs offer pre-tax advantages, enabling employees to set aside money for medical expenses. However, understanding their complexities is crucial to avoid forfeitures.

Simplifying FSA rules and making sure employees are informed about their options is a key task for HR teams. By communicating spending deadlines and available strategies for FSA use, employees can better manage these funds. “Use it or lose it,” emphasizes the need for timely utilization of account balances before the year ends, as noted by industry experts.

Strategic Spending to Maximize Benefits

To maximize benefits, users should be proactive. Eligible expenses include co-pays, dental and vision care, and over-the-counter items. Additionally, strategic use involves scheduling necessary medical appointments before the year’s end. For certain expenses like surgeries anticipated for the following year, understanding provisions like partial rollovers may aid in financial planning. A carry-over option allows a sum of up to $640 to roll into the next year; however, users must be aware of the lack of grace periods under this choice.

Make sure you understand the clock and the rules – David Feinberg of Justworks

Grasping the implications of extensions is imperative. Grace periods allow an additional 2.5 months post deadline, enabling further FSA utilization until March 15. Users should, however, be aware that these extensions do not negate the necessity of spending the funds within the designated timeframe. Communication about spending deadlines and associated policies should be consistent and varied, using channels such as emails or newsletters.

Effective Communication and Employee Role

Employers can foster understanding and effective use of FSAs by actively communicating details and deadlines. By leveraging communication channels, proper guidance can be given, ensuring employees are well-informed about their FSA usage, eligibility for expenses, and submission deadlines for reimbursement claims, critical components in maximizing account value and coordinating healthcare planning.

Enhanced communication leads to financial well-being and improved job satisfaction. As the year-end deadline nears, understanding the scope of FSAs can make a significant financial difference for users. A planned approach not only maximizes the utilization of funds but ensures employees are reaping the intended benefits of these accounts.

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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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