The clock is ticking for the FSA grace period
Benefits & Compensation Regulatory Alert
If your company offers a Flexible (or Flex) Spending Account (FSA) as part of its health benefits package, time is tight for employees to use their remaining 2019 funds. The grace period deadline for calendar year plans is f
Generally, employees must use their FSA money within the plan year. Employers, however, may offer one of two options for an extension
of unused funds:
Employers may provide a grace period of up to two-and-a-half months for employees to use their FSA money (March 15 for calendar year plans). : FSA Grace Period
Employers may allow employees to carry over up to $500 per year to use in the following year. : FSA Carryover
Last-minute ideas for spending FSA funds:
ntact Lenses ✔ Contact L
ens Solution ✔ Eyeglasses
n Sunglasses ✔ Rea
ding Glasses ✔ Laser
Eye Surgery ✔ Arch Supports/Orthop
edic Insoles ✔ Hearing Ai
ds/Batteries ✔ Ice Packs
✔ Blood Press
ure Monitors ✔ Sunscreen
bing Alcohol ✔ Acupuncture
✔ Counseling (excep
tions apply) ✔ Chiroprac
Employers may offer either of these options, but not both. In fact, employers are not required to offer either option. Many do, though, as it’s a
n added benefit. Educating employees
An FSA is a use-it-or-lose-it benefit. At the end of the year (or grace period), employees lose any money left in their accounts. Thus, it’s important for employees to plan carefully and not put more money in an FSA than they think they’ll spend wit
hin a plan year.
Employees may not fully understand how FSAs work. If employees are fresh out of college and new to the workforce, this might be the first time they’re managing their own health care expenses. They may not realize how to budget and prepare f
or these costs.
Employees who are in the middle of their careers and who may be raising a family could have different needs than others just starting out. These employees may be able to make the most of their FSA money to cover costly ER visits for kids’ sports injuries, eye doctor expenses, and other costs associated with ra
ising a family.
Your empty nester employees may want to reduce their FSA funds. However, reducing their FSA contributions could bump them up into a higher tax bracket, since their take-home pay would increase. They might want to consult with a financial advisor before mak
ing any changes.
No matter what demographics apply to your employees, it’s good to have educational strategies in place throughout the year. Whether this includes periodic reminders to use funds or general FSA information, communicating year-round is key. Some basic FSA facts to share with employ
ees can include:
Tax savings. Employees don’t pay taxes on FSA money. This means employees save an amount equal to the taxes they would have paid on the money set aside for health care costs.
Employer contributions. Employers may make contributions to employees’ FSAs (but aren’t r equired to).
Fund limits. Currently, FSAs are limited to $2,650 per year. Spouses can each have their own FSA fund, but they can’t both get reimbursed for the same expense. Funds pay for health care expenses of employees and their spouses or dependents (if applicable). Employees can spend FSA funds on deductibles and copayments, but not on insuran ce premiums.
Fund coverage. Employees can spend FSA funds on prescription medications, as well as over-the-counter medicines with a doctor’s prescription. Reimbursements for insulin are allowed without a prescription. FSA money may also be used to cover costs of medical equipment like crutches, supplies like bandages, and diagnostic devices like blood sugar test kits.
Key to remember: FSA funds are a great way to offset health care costs. Be sure employees know what’s considered an eligible expense and when fund deadlines are approaching.
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