As a reminder for 2018, the IRS says now is a good time for employees to plan to take advantage of their employers’ health flexible spending arrangements (FSAs).
FSAs allow the use of tax-free funds to pay medical costs that aren’t covered by health plans. Employees who qualify for these accounts must determine how much they want to contribute to them through payroll deductions before the plan year begins. Hence, the IRS’s suggestion to enroll now. And, if employees used FSAs in 2017, they need to re-up for 2018.
FSAs aren’t available to the self-employed.
Employees can contribute up to $2,650 in 2018 — an increase of $50 from 2017. Some plans will allow employers to also contribute to employee FSAs.
Once enrolled, employees can use the FSAs to pay for qualified, otherwise non-covered medical expenses, such as co-pays, deductibles, dental and vision care, and others. Employers will be able to provide more details on what’s eligible and how to claim.
Here’s the catch: FSAs have a use-it-or-lose-it proviso. So employees who don’t use up their FSAs by the end of the year forfeit the unspent amounts. However, a special rule allows employers — if they choose to — offer employees more time either through a carry-over option or grace period.
Under the carry-over option, employees with leftover funds can still use them in 2019. The grace period, on the other hand, gives employees 2.5 months into 2019 to use up the funds.
Employers can provide either option but not both – or none at all. They also don’t have to offer FSAs. So employees should check with the bosses about the possibility of these accounts.
The IRS provides more information about FSAs in Publication 969, which also provides information on other types of health savings plans.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.