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FSA Funds to the Rescue

Employees participating in an FSA are encouraged to check with their employer for details on eligible expenses and claim procedures.

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Employees participating in an FSA are encouraged to check with their employer for details on eligible expenses and claim procedures.

This may be a reminder to some and an “I didn’t know that” to others, but whether it’s a mere prompt or an eye-opener, the good news is that some employees may be eligible to use tax-free dollars to pay for medical expenses that are not covered by other health plans.

Now that health care open enrollment is here, eligible employees of companies offering a health flexible spending arrangement (FSA) should take advantage of it for the upcoming year 2020 before their medical plan year begins. Sorry, self-employed workers – you are not eligible for this advantage.

An employee who participates in a company-offered FSA can contribute up to $2,750 through payroll deductions during the 2020 plan year. Contributed amounts are not subject to federal income tax, Social Security tax or Medicare tax. The employer may also contribute to an employee’s FSA, if the plan allows.

So, how can an FSA take care of expenses not covered by the company health plan? Over the course of the tax year, employees can use FSA funds for any number of medical costs not already covered by their employer health plan, including co-pays, deductibles and a range of medical products. FSA dollars can also be used for medical services such as dental, eyeglasses and hearing aids.

Take note of the FSA “use or lose” provision – participating employees typically need to incur eligible expenses by the end of the plan year, otherwise unspent funds will be forfeited. That said, employers can offer an option that allows participating employees additional time to use their FSA amounts: a carryover option so an employee can carry over up to $500 of unused amounts to the next plan year or a grace period option to allow an employee twoandahalf (2.5) months after the end of the plan year (generally March 15) to incur eligible expenses. Employers can offer either the carryover or grace period option – but not both – or no options at all.

Employees participating in an FSA are encouraged to check with their employer for details on eligible expenses and claim procedures.

 

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law. 

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