Ask Kim
Tax-Free Money for Big Medical Expenses
Some people may be able to combine 2009 flexible-spending account money with 2010 money to cover expensive procedures.
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
January 28, 2010
My employer gives me until March 15 to use the money in my flexible spending account from the past year. What are some ways that I can use the money from 2009 before I lose it?
You can use money in your FSA for almost any medical expense that insurance doesn’t cover, such as co-payments, deductibles, and out-of-pocket costs for dental care, vision care and medicines (whether prescription or over-the-counter). People tend to go on last-minute spending sprees to clear out their accounts before the deadline. That typically includes stocking up on contact lenses, glasses or prescription sunglasses; getting teeth cleaned; filling prescriptions; or buying big bottles of pain relievers and over-the-counter cold and allergy medications.
But if you think big, you may have an opportunity to tap an extra-large pot of money before the deadline. That’s because you can use the full amount you earmarked for your FSA for 2010 starting on January 1, even though you haven’t actually contributed that much money to your account yet.
Say, for example, you plan to contribute $3,000 to your FSA in 2010, and you still have $1,000 left over from 2009. That gives you $4,000 tax-free to spend now on a big-ticket item such as laser eye surgery or dental work -- even though you may have contributed only a few hundred dollars so far this year.
In most cases you can use the money for your dependents’ medical expenses as well as your own, even if they aren’t covered under your health-insurance policy. You can’t spend the 2009 money after March 15, but most employers will give you a few extra weeks after the deadline to submit the expenses for reimbursement.
See 7 Smart Uses for Your Flex-Account Money to learn more about eligible expenses -- including some you might not expect, such as smoking-cessation programs and doctor-prescribed weight-loss programs.
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Reader Comments (9)
Posted by: ray at 01/28/2010 04:10:46 PM
I'm a self employed contractor, my problem is one of the companies i have done work with has not sent me a 1099 for 2008. I have called for over a yr. now and he refuses to send them to me, my truck was broken into and most of my paper work is missing. What can i do to file 2008 taxes im already way past my extension because of this? thank you.
Posted by: Doug at 01/29/2010 10:12:28 AM
...I think if you will check the FSA policies closer, you will find that the 3 month grace period only applies to medical bills dated prior to December 31 of the plan year. Most policies assume that some bills in November and December may not be settled before the end of the year so they allow those claims to be submitted in the first quarter of the following year. You cannot use money from two different plan years for the same date of service.
Posted by: Kim Lankford at 01/29/2010 04:44:37 PM
Hi Doug, this is Kim Lankford. Actually, the IRS issued a notice in 2005 that allowed employers to extend their FSA deadlines for 2 1/2 months -- allowing employees to use the FSA money on medical expenses they incur until March 15 of the following year. Employers were not required to extend their deadlines -- some still have a deadline of December 31. But many now do allow you to use the FSA money for medical bills you incur until the following March 15, giving you an extra large pot of money to tap for medical expenses at the beginning of the year. Hope this helps.
Posted by: Lana at 01/30/2010 05:29:40 PM
We filed our taxes this year thru Turbo Tax....Up thru last year we used a CPA because my husband was a truck driver and considered self-employed.....so we filed form 1040 and received a refund of $1,160.00...However, I see on the forms I e-filed today for 2009 taxes a penalty of $28.00...and turbo tax says we owe $ 1,602.00 this year (we both only rec'd w-2's) and are no longer considered self-employed....however, when I printed out the forms (1040A) form 1040-V also printed...saying we can still pay a quarterly amount of $394.00... Don't we need to pay the entire amount on April 15th?? since we now have set salaries???
Posted by: HENRY HILL at 01/30/2010 09:50:13 PM
I sold my house in September 2006 and bought a new one in March 2009. Do I qualify for the $8000 tax credit?
Posted by: Kathy at 02/01/2010 08:54:38 AM
I bought a house Dec. 2008 although I lived in a home for 5 years that I bought prior to that, am I eligible for the first time home buyers credit?
Posted by: sheryl h at 02/08/2010 06:26:18 PM
My son made an error on 2007 taxes and owes money. He tried to claim child care exp even through he had his son most of the year. His mother claimed him as her dependent. IRS disallowed this and I owe them money plus penalty etc. I co share mortgage & real estate tax credits on taxes with my mother. I live with her and share all costs. In reviewing 2006 & 2007 she has carry over credits from her portion of the interest. Can I now amend 2007 and use the carry over credit. This would wipe out the amount the IRS says I am owing. AND should I complete this before doing my 2010 return?
Posted by: sherry h at 02/08/2010 06:31:47 PM
Turbo Tax keeps asking me to up-grade to basic. I'm using the freedom edition which in the past has always been fine. What's so good about basic verses freedom verse deluxe? ALSO, I have 4 of us I am doing taxes on in the same state. But one of us turbo says I have to buy, is it better to buy and use for all of us.
Posted by: janie at 06/14/2010 12:39:47 AM
I am soon to be divorced. My soon to be ex is going to buy me out of our house. I need to have some major dental work done and do not have insurance. Is there any way I can get a tax break by using this money for my dental work? It is not going to be enough to purchase another house and I really need to get this work done. I also have money in a 401K, half of what I will need, can I use that with out paying big penalties?