As we approach the end of the year, it’s a crucial time for Flexible Spending Account (FSA) holders to review their balances and ensure they’re maximizing these pre-tax dollars. While FSAs provide valuable tax benefits, they come with strict use-it-or-lose-it rules that can leave employees forfeiting funds if they don’t act before the year ends.
Continue reading to learn what both employers and employees need to know about FSAs, critical deadlines, and strategies to avoid losing these hard-earned savings.
Key Deadlines For FSAs
Flexible Spending Accounts generally have a calendar-year plan, which means that for many, December 31st is the last day to incur eligible expenses. According to the IRS, however, employers can offer one of these options that provide additional flexibility:
- Grace period: Allows employees an extra two and a half months after year-end to use any remaining FSA funds.
- Carryover option: Permits employees to roll over up to $640 of unused funds (as of 2024) into the next plan year while forfeiting any remaining balance beyond this limit.
Employers may offer one of these options but not both. It’s critical for employees to check with their HR departments to know which option, if any, applies to their account.
What Employees Should Know
Employees looking to make the most of their FSAs before the deadline should consider the following steps:
- Review eligible expenses: FSAs cover a wide range of medical, dental, and vision expenses. Typical eligible expenses include prescription medications, copays, and medical equipment. Click here for an entire store of qualifying expenses, which can be helpful in planning year-end spending.
- Schedule appointments and fill prescriptions: Many health care providers and pharmacies book up quickly toward the end of the year. Employees should consider scheduling any necessary medical, dental, or vision appointments as soon as possible.
- Invest in health products: Many over-the-counter products, such as first aid kits, blood pressure monitors, and even sunscreen, are FSA-eligible. Employees can use up their remaining funds on these items.
- Track spending carefully: It’s essential to keep receipts and track spending, as some items may need documentation for reimbursement. Additionally, employees should confirm their remaining balance through their FSA provider to avoid overspending.
Important Considerations For Employers
Employers play a vital role in helping employees understand and maximize their FSA benefits. Here are some key points for employers to keep in mind:
- Communicate deadlines: Employers should remind employees of year-end deadlines and if there are grace periods or carryover options in place. Clear communication can help employees make informed spending decisions.
- Encourage education on eligible expenses: Many employees may not be aware of the full range of FSA-eligible expenses. Employers can consider sharing resources or holding informational sessions to help employees make the most of their funds.
- Evaluate FSA options for the next year: Offering a grace period or carryover option can provide employees with valuable flexibility, and it may encourage higher FSA participation rates. Employers should assess these options annually to determine which choice best aligns with their company’s goals and employee needs.
How GMS Can Help
FSAs are a valuable employee benefit, but managing them effectively requires clear communication and guidance. Group Management Services (GMS) assists businesses in structuring and managing their benefits packages, including FSAs, to optimize value for both employees and employers. From helping you select the best FSA options to educating your workforce about deadlines and eligible expenses, GMS provides comprehensive support to make year-end planning seamless.
Don’t let your employees lose out on the benefits they deserve. Contact GMS today to maximize the impact of your company’s FSA offerings.