Beware the Ides of March. The FSA grace period extends through March 15, 2024.
Some employers offer a Flexible Spending Account (FSA), enabling employees to contribute to a personal fund to pay for out-of-pocket healthcare or dependent care expenses. These tax-advantaged funds have an expiration date; you typically must use most or all of the FSA money in your account by the end of the 12-month plan period. About 36% of all FSAs allow a grace period to spend any remaining funds.
This grace period extends the 12-month plan year by 2 ½ months. So, for a plan year that started on January 1, 2023, you have until March 15, 2024, to incur eligible expenses and receive reimbursement. Any unused balance at the end of the grace period will be forfeited.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
An FSA grace period is different than a carryover balance
A "grace period" differs from an "FSA carryover" provision, used by about 40% of FSA plans. Carryovers allow you to spend a maximum of $610 of unused healthcare FSA balances from 2023 to 2024. Carryover amounts do not have a use-by date and are added to your account balance.
Carryover amounts may be deposited to a limited-purpose FSA (primary use dental and vision) versus a standard FSA if you are enrolled in a high-deductible health plan. That way, the carryover amounts won’t prevent you from contributing to your Health Savings Account (HSA).
How to use your remaining 2023 FSA balance
Wondering how to deplete your 2023 FSA balance? In addition to some simpler ways to spend FSA money, you should probably think about expenses you may have overlooked. These items are generally "those that most people don’t incur, that require a letter of medical necessity, or that have very specific conditions under which they are reimbursable,” said Sara Taylor, senior director of Employee Spending Accounts at WTW.
Ms. Taylor also shared with Kiplinger some commonly overlooked expenses, including the following.
- Capital expenses such as installing an entrance ramp or adding handrails or grab bars to a home to support a disabled condition
- Guide dogs/service animals
- Resident costs and fees for intellectually and developmentally disabled persons who require a special home
- Lodging or transportation expenses, such as mileage and parking for travel to receive medical care
In addition to reviewing receipts and your explanation of benefits (EOB), employees with a grace period may also incur additional medical expenses until March 15, 2024. Ms. Taylor explained that employees "could do this by scheduling additional necessary medical visits, ordering new contact lenses" or purchasing over-the-counter medications and first aid supplies. Sites such as FSAstore.com and HSAstore.com make it easy to spend those last few dollars and stay in compliance with plan rules.
How much should you put in your FSA during open enrollment this fall?
If you put too much in your FSA last year, there are ways to estimate better what your expenses will be and how much to contribute to your FSA. “Start by looking at how much you spent out-of-pocket on healthcare the prior calendar year," suggested Ms. Taylor. "Then determine if that year was a high, low or average spend year and adjust accordingly. If that’s too overwhelming, focus your attention on a few areas — prescription drugs, dental, vision and the one or two people in your family that use health care the most.”
And don’t overlook the human resources department at your job for guidance. “Many employers provide online modeling or calculator tools that employees can use to estimate expenses and determine how much to contribute to the FSA” added Ms. Taylor.
From bandages to braces, you can set aside as much as you plan to spend on qualified health expenses next year, as long as it’s within your FSA maximum contribution limit. No matter how much you set aside, starting an FSA is a smart way to pay for health expenses for you and your family.
-
Dow Adds 646 Points, Hits New Highs: Stock Market TodayIt was "boom" for the Dow but "bust" for the Nasdaq following a December Fed meeting that was less hawkish than expected.
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
