A recent study revealed 50% of people with Flexible Spending Accounts (FSAs) are fuzzy on the details of the “use it or lose it” part of these tax-saving vehicles—particularly the deadlines for the funds in them must be spent. This year more than ever, that’s not exactly surprising: COVID relief legislation added in new, overlapping extensions that made FSA spending even more flexible—and certainly more confusing. Here’s what you need to know about spending your 2021 funds and planning for next year.
FSAs are a little less “use it or lose it” for 2021
FSAs—untaxed healthcare spending accounts provided by your employer—typically offer only one of two following options for any unused funds you have left over at the end of a given year:
- You can roll over up to $550 to the next year.
- You can take advantage of a 2.5 month grace period to spend the remaining funds.
However, COVID relief legislation in 2020 created an additional option that allowed employees to carry over all of their unused money from 2020 into 2021, for both healthcare and dependent care FSAs. This means that in 2022 you might need to spend all of your remaining FSA funds from both 2020 and 2021, or risk losing it all—so you’ll definitely need to calculate your rollover balance before you decide how much to have taken out of your paychecks next year.
Adding to the muddle, the American Rescue Plan Act of 2021 also allowed employers to increase the annual limit on contributions to dependent care FSAs to $10,500, for 2021 only.
How to find your FSA’s spending deadline
A recent Health-E Commerce survey reveals that 76% of respondents were not notified of their FSA spending deadline, or at least don’t recall being notified of it.
For this reason, you’ll want to contact your employer’s human resources department directly and confirm the details of your plan, its spending limits, and your remaining balance, and ask any other questions you might have. You can’t count on anything you just read above; it’s possible your particular plan does not include the new rollover options, since they’re not mandatory for employers. By checking now, you’ll be giving yourself more time to spend down your balance before the end of the year, after which point they might be gone forever.
How can I quickly spend my FSA funds?
If you can’t think of things to buy before your FSA funds run out, consider the suggestions in this Lifehacker post. At the very least, you could stock up on simple things like aspirin, sunscreen, or first aid kits. The FSA store and the Amazon FSA store are good places to start shopping.