Does your benefit plan year begin on January 1? Does your employer offer a grace period? If so, the end of your flexible spending account (FSA) grace period may be almost here! The FSA grace period is defined as a two month and 15 day period following the end of the plan year. That means FSA owners who have remaining funds from 2019 must use up their FSA money by March 15. (Some employers may offer a different date, but more on that below.)
We know what you’re thinking: Do have I have a grace period? What if my employer offers FSA rollover? Are these the same thing? Don’t worry. Here is a quick guide that breaks down the difference between the FSA grace period and FSA rollover, along with a list of how to spend those FSA funds the smart way by the deadline—whether that’s March 15, or another time of year for your plan!
What is the FSA grace period?
If you end out the plan year with FSA dollars left, the Internal Revenue Service (IRS) allows a maximum 2.5-month grace period in the new year to spend those funds. It’s important to know that not all employers offer the grace period option, and the time frame in which you could spend those remaining FSA funds from the previous year may vary by employer, as well as the plan year end date.
Your employer decides the length of the grace period, so it is important to check with your company’s benefits administrator or human resources rep to learn more about your options.
Here’s an added bonus: The FSA grace period is for both health care and dependent care FSAs—that means child care, after school programs, day care, and other dependent care options can all be factored into your spend down before March 15.
What is the FSA rollover?
At the start of the plan year, FSA owners choose how much pre-tax income to allocate to their health care expense account each month, with a maximum contribution amount of $2,750 per year for individuals (as of 2020). If you get to the end of the plan year with FSA funds remaining, employers can choose to allow employees to roll over up to $500 of health care FSA dollars to spend at the start of the new plan year.
The $500 of FSA rollover does not count towards the contribution maximum for the new year, so you could potentially have as much as $3,250 in FSA dollars to spend in a year if you roll over the maximum amount (based on the current limits). This option only applies to health care expense, not dependent care.
How to Take Advantage of the FSA Grace Period
Now that we’ve covered the difference between the FSA rollover and grace period, let’s focus on the looming grace period deadline. It’s not too late to use the FSA funds you have left in your account! Here are ways to make the most of the grace period and spend your pre-tax money wisely:
- Find out the length and timing of the grace period
The first step to spending your FSA funds wisely is to learn about the grace period your employer may offer. The IRS allots 2.5 months AT MOST after the plan year to spend down FSA funds, so if your plan ended December 31, that gives you until March 15. However, each employer can set a different amount of time, and your plan end date may not be December 31. Check with your human resources rep or benefits provider to find out your deadline. - Check your FSA funds
Once you’ve confirmed the deadline for spending, you should find out how much you have of last year’s FSA funds to spend. Use the myCYC® mobile app to quickly access the benefits portal to check your FSA account balance, or log in to your account through our web portal to check your benefits online. You could also contact your human resources rep or benefits provider for details about your FSA balance from last year. - Look at last year’s spending to make a budget
Plan for your health care expenses this year by making a quick health care budget. You never know what life will throw your way, but you can look back at the previous year to estimate how much you might spend on routine health care services and products like annual physicals, health care screenings, and prescription spending. Doing this will give you confidence to spend those FSA funds on items and services that make the most sense. - Learn about eligible FSA expenses
Once you know how long you have and how much you have to spend, you should learn what expenses are eligible to pay for with FSA dollars. There are thousands of health care products you can purchase with FSA funds and many medical services that qualify, but you should always check to ensure they are eligible. Don’t forget there are several dependent care FSA expenses that are also eligible! that We have a handy FSA-eligible expense sheets you can refer to for FSA-eligible items and services. - Spend your FSA funds on health care products
With your budget in hand, you can check out the FSA-eligible health care products at your local pharmacy or at one of the convenient online shops like the CYC Marketplace to stock up on health care items you may need throughout the year like cold and flu medicine, bandages, sunscreen, and other medical products you’re likely to use. With FSA dollars, you get a discount on these everyday health care items because you pay for them with tax-free funds. - Use your FSA to pay for medical services and appointments
If you have an upcoming medical appointment like a doctor’s visit or routine health care screening, you can use your remaining FSA funds to cover the copay. Check the FSA eligibility sheet to ensure that the medical service or procedure qualifies for coverage with the FSA and then spend those dollars before they disappear!
