If your workplace offers a flexible spending account (FSA) with a 2-1/2-month grace period to spend your 2020 funds, make sure you spend it before March 14th, when the grace period will expire. You have until Monday to spend the funds on qualified healthcare expenses; after that, any unused money is gone for good.
Last-minute “use it or lose it” spending
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With an FSA, an employer will set aside pre-tax dollars from your earnings to help pay for health-related or dependent-care expenses such as glasses, over-the-counter drugs, or trips to the dentist. Roughly speaking, it’s a 30% discount on what you’d normally pay.
If you’re not sure whether your plan includes a grace period, check with your employer. If not, you’ll also want to ask if the FSA has a rollover option, which allows for $550 of the funds to be carried over into next year (you can have either the grace period or rollover, but not both).
If you have the grace period but aren’t sure what to purchase with the expiring funds, check out the list of possible options at the bottom of this Lifehacker post (when in doubt, you can always load up on Aspirin).
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Other FSA exceptions
The December 2020 pandemic relief legislation broadened some of the regulations for FSAs as well, although in ways that are not mandatory for your employer to follow. Even so, you might want to find out if these rules apply to your plan. Per the legal news site, JD Supra, these changes include:
- Extended carry-over and grace periods for 2021 and 2022. Any balance up to $5,000 (for families) at the end of 2020 can be carried forward into 2021, and any balance at the end of 2021 can be carried forward into 2022. Likewise, grace periods are extended from the original 2.5 months to the end of the full calendar year (i.e., you have all of 2021 to use your 2020 funds).
- FSA account elections are no longer irrevocable during the 2021 plan year. Employers can also choose to allow employees to make prospective changes to their FSA elections mid-year, without a change in status or qualifying event, during 2021.
- Employers are allowed to let terminated employees continue to access their accounts through the end of the plan year in which their participation terminates, plus any grace period.
At the very least, the new law loosens IRS restrictions, but you’ll want to check with your employer about if and when these changes will be in effect for your own FSA plan.