It might be time to empty your FSA account

If you have a tax-saving flexible spending account (FSA) with your employer to help pay for health or dependent care expenses, you might be running out of time to use it.

As the end of 2023 gets closer, here are a few rules and reminders to help you make the most of your FSA.

Health FSA 

A pre-tax contribution of $3,050 to a health FSA is permitted in 2023. This amount will increase to $3,200 in 2024. You save taxes in these accounts because you use pre-tax dollars to pay for medical expenses that might not be deductible. For example, expenses won’t be deductible if you don’t itemize deductions on your tax return. Even if you itemize, medical expenses must exceed a certain percentage of your adjusted gross income to be deductible. Additionally, the amounts that you contribute to a health FSA aren’t subject to FICA taxes.

Your employer’s plan should have a list of qualifying items and any documentation from a medical provider that may be needed to get reimbursed for these expenses.

FSAs generally have a “use-it-or-lose-it” rule, which means you must incur qualifying medical expenditures by the last day of the plan year (December 31 for a calendar year plan) — unless the plan allows an optional grace period. A grace period can’t extend beyond the 15th day of the third month following the close of the plan year (March 15 for a calendar-year plan).

What if you don’t spend the money before the last day allowed? You forfeit it.

Look at your year-to-date expenditures now. It will show you what you still need to spend. So how do you use up the money? Before the year ends (or before the extended date, if permitted), schedule certain elective medical procedures, visit the dentist, or buy new eyeglasses.

Dependent care FSA 

Some employers also allow employees to set aside funds on a pre-tax basis in dependent care FSAs. A $5,000 maximum annual contribution is permitted ($2,500 for a married couple filing separately).

These FSAs are for:

  • A child who qualifies as your dependent and who is under age 13, or
  • A dependent or spouse who is physically or mentally incapable of self-care and who has the same principal place of abode as you for more than half of the tax year.

© 2023 KraftCPAs PLLC

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