Open Enrollment for FSA Underway

Eligible Employees Can Use Tax-Free Dollars For Medical Expenses

With health care open enrollment season now underway at many workplaces, we want to remind workers they may be eligible to use tax-free dollars to pay medical expenses not covered by other health plans.

Eligible employees of companies that offer a health flexible spending arrangement (FSA) need to act before their medical plan year begins to take advantage of an FSA during 2020.

Self-employed individuals are not eligible.

An employee who chooses to participate can contribute up to $2,750 through payroll deductions during the 2020 plan year. Amounts contributed are not subject to federal income tax, Social Security tax, or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA.

Throughout the year, employees can use FSA funds for qualified medical expenses not covered by their health plan. These can include co-pays, deductibles, and a variety of medical products.

Also covered are services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.

Use It Or Lose It

Under the FSA use-or-lose provision, participating employees normally must incur eligible expenses by the end of the plan year or forfeit any unspent amounts. However, employers have the option to allow participating employees more time to use FSA money.

The Carryover Option

Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year. For example, an employee with unspent funds at the end of 2019 would still have those funds available to use in 2020.

The Grace Period Option

Under the grace period option, an employee has until two and a half months after the end of the plan year to incur eligible expenses.

For example, March 15, 2020, for a plan year ending on Dec. 31, 2019.

Employers can offer either option (not both) or no option.

Employers are not required to offer FSAs. Interested employees should check with their employer to see if they offer an FSA.

More information about FSAs can be found at IRS.gov; Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

For more detailed information about Flexible Spending Accounts (FSA) and how they may relate to your particular tax situation, contact your local tax professional.