Time is running out for your employees on flexible spending account (FSA) funds because the Dec. 31 “use-it-or-lose-it” deadline returns this year.
FSAs are employer-sponsored accounts that allow employees to set aside pre-tax dollars each year — up to $2,850 in 2022 — to use on certain healthcare expenses. More than 20 million Americans use healthcare FSAs to offset out-of-pocket medical costs, and as many as 4 out of 10 forfeit a portion of their contributions because they miss the spending deadline.
Typically, FSA funds are required to be spent by Dec. 31, unless an employer opts to allow workers to roll over up to $570 into the next year or provides a two-and-a-half-month grace period — pushing the ultimate deadline to March 15. Money.com estimates $3 billion in FSA funds were forfeited in 2019, with employees losing an average $369 each.
This year, employees could have larger FSA account balances than normal because of a temporary change in federal law during the 2020 and 2021 pandemic years. This change allowed employers to extend the FSA grace period to 12 months (instead of two and half months) or permit workers to roll over all leftover FSA money to the following year.
Now that the normal spending deadlines are back again for 2022, AARP has published a list of FSA-eligible products and services that employees can spend FSA money on. These include doctor visits, prescription and over-the-counter medicines, travel costs for medical care, over-the-counter hearing aids, glasses, sunscreen, pain management products, and even DNA tests kits, such as 23andMe.