Don’t Lose Flexible Spending Account Dollars at the Year-End by Adam Cohen, CPA
Posted on November 30, 2017 by Adam Cohen
As 2017 comes to a close, it is time for individuals with Flexible Spending Accounts (FSAs) to understand their responsibilities and potentially take action to use or lose any remaining balance in their FSAs before Dec. 31, 2017.
While FSAs can provide significant tax savings, such as lowering participants’ taxable income and reducing the amount of taxes they are required to pay, these plans also come with some restrictions that can be extremely costly when individuals do not plan appropriately.
FSAs allow individuals to set aside pre-tax dollars via payroll deductions to pay for qualified medical and dependent care expenses not covered by their health insurance plans. These out-of-pocket expenses can include insurance copayments and deductibles, medical equipment, prescriptions drugs and some over-the-counter medications, as well as dental and vision exams, weight loss programs, acupuncture, travel vaccines and other health care treatments and services allowable by each particular plan.
Typically, individuals will automatically forfeit unused dollars left over in an FSA at the end of the year. However, some plans provide participants with more flexibility. For example, an employer may allow its workers to roll over a maximum of $500 in FSA savings to the following year, or it may give employees a three-month grace period to use end-of-year balances in the following year. It is important that workers understand these options and whether or not they apply to their individuals FSA plans.
If a plan follows the “use it or lose it” rules, participants should take the time now, in the remaining weeks of 2017, to make needed doctor’s appointments, schedule important procedures or stock up on contact lenses and qualifying medications.
In addition, workers should review how much they spent on health care costs in 2017, and whether or not they expect to spend at least the maximum FSA contribution limit of $2,650 for 2018. If an individual’s health care costs are minimal during a year, they may opt to contribute less to an FSA in 2018 or forego this tax-advantaged vehicle entirely.
About the Author: Adam Cohen, CPA, is an associate director in the Tax Services practice of 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 office at (954) 712-7000 or via e-mail firstname.lastname@example.org.