Flexible spending accounts can lower tax bills
If, as in the earlier example,
you were able to get a pair of glasses at a discount vision center in January
for $150, you can use FSA money contributed in the prior year to pay for it. But if you don't incur
any other medical expenses by March 15, you will lose the $50 you still have leftover from last year.
Your employer should give you a grace period
to submit your extended FSA requests. Under the old rule, many companies gave
workers up to 90 days after the end of the benefit year to submit claims.
expects employers who change benefit plans to accommodate the FSA rule change
will continue to give workers a grace period to file claims against prior-year
FSA money. It sometimes takes a while, he notes, for doctors and insurance companies
to work through the system to determine just how much an individual must pay out-of-pocket.
prevents wasted accounts
While the use-it-or-lose-it extension can help
you get more from your spending account, don't use the extra time as an excuse
to get sloppy in deciding how much you want to put into your FSA.
signing up for an FSA, carefully review your personal and family medical needs.
A quick check of last year's medical costs is a good place to start.
"The biggest challenge for me is figuring out what my health care expenses are going to be from year to year," says Beverly Molnar, who also takes advantage of a dependent-care spending account offered by her employer, Penn State University. "Sometimes the health care expenses aren't quite as predictable as the child care costs."
Molnar remembers a time she did overestimate her medical expenses and faced the possibility of losing almost $1,000 left in the account. "The only thing that saved me was that my husband went into the hospital unexpectedly for surgery," says Molnar. She didn't use her account funds for his medical expenses (he has his own FSA); most of her excess FSA that year went toward Molnar's costs of staying at a nearby hotel while her husband recovered.
Molnar says she knows her FSA saves her some tax money -- she signed up at the urging of her tax preparer -- but she hasn't figured out exactly how much. But the account also has a side benefit. "It helps me budget a little better for health care, to keep track of what I'm spending," she says.
To avoid wasting a large FSA sum, Scharin advises employees to be conservative in figuring their contribution amounts, regardless of whether the money must be used by Dec. 31 or the following mid-March. "You don't want to have unspent dollars," says Scharin. "The rule change provides
a little wiggle room, gives you more of an opportunity to use it. But you still
could lose it."
And if you later find you didn't
do such a good job in figuring your FSA contribution,
you still might be able to change it. If you
have a major change in your life -- marriage,
divorce, birth of a child, reduction in work
hours or job loss or change by your spouse
-- you can make changes to your FSAs.
But for most employees, those
changes are rare. So take the time to make
sure you maximize this valuable company benefit.
|-- Updated: March 26, 2009