How do Flexible Health Care Spending Arrangements Work in 2019? by Adam Cohen, CPA
Posted on January 17, 2019 by Adam Cohen
Eligible employees who enrolled to participate in their employers’ health care flexible spending arrangements (FSAs) for 2019 will be able to contribute and use up to a maximum of $2,700 tax-free dollars to pay for certain medical expenses not covered by their health insurance plans this year. That’s a $50 increase from the 2018 FSA contribution limits.
FSA contributions are typically made via payroll deductions and are not subject to federal income tax, Social Security tax or Medicare tax. Throughout the year, employees can use these funds to pay for qualified medical expenses, including certain prescription and over-the-counter medications, co-pays for doctor visits and out-of-pocket costs that go toward their health insurance deductibles. In addition, participants may use FSA money to pay for a broad range of medical, dental and vision products and services, including eyeglasses, hearing aids, first-aid kits, weight-loss and smoking-cessation programs and even child care, some of which may not be covered by workers’ health insurance plans.
FSAs generally operate under the principle of use-it-or-lose-it, meaning that workers risk losing any amounts of money they failed to use by the end of the last day of the calendar year. However, many employers choose to offer their employees the flexibility of either carrying over up to $500 of unused funds into the following year or granting employees a grace period of up to two-and-a-half months into the following year (until March 15) to spend FSA savings left over from the prior year. By law, employers may offer one or none of these options, but not both. Therefore, it is critical for workers to check with their employers to determine if either of these options are available to them and act accordingly. Every year, more than $400 million of earned money is forfeited because employees either miss or forget the FSA spending deadline.
About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via e-mail at firstname.lastname@example.org.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.