If you thought you wasted some flexible spending account money last year because you didn’t spend it all by Dec. 31, you might have a second chance.
But you’ll need to hurry. The next, and final deadline, is March 15.
Flexible spending accounts, commonly referred to as FSAs, are popular employer-provided benefits, allowing workers to set aside money to pay for items such as health insurance co-pays, uninsured treatments (such as vision care) or even over-the-counter drug purchases. The money is put into the employee account through regular, equal payroll deductions. Even better, the deductions are made on a pretax basis, meaning you don’t have to pay federal, Social Security — and in some cases — state taxes on that amount of income.
However, FSAs do have one major shortcoming: If you don’t use the money, generally at the end of your benefit year, you lose it. Because of this no-carryover rule, many workers annually forfeit sometimes sizable amounts of FSA money.
Complaints about this restriction prompted the Internal Revenue Service a few years ago to change the rules. Now, says the IRS, spending plan participants can make claims against their accounts for up to two and a half months after the end of their benefit year. If you’re on a calendar benefit year that ended Dec. 31, you can use your 2008 contributions for expenses incurred as late as March 15.
The hang-up here is that it’s up to employers to implement the extended-access option. The IRS said they could offer the extra FSA time, not that they had to offer it. So make sure your employer does offer the grace period.
If so, and you do have some 2008 cash left in your FSA, then you still have a little time to make sure it’s not wasted. Here are some ways to empty your account.
See your doctor and dentist now
One of the most common uses of FSA money is paying for dental work. Although time is tight, it’s worth a try to get into your dentist’s office now.
On the other end of the age spectrum, older patients who have dentures can take advantage of the account money to ensure that their dental health is good. Patients of all ages should squeeze in another appointment in the next few days, especially if it’s been a while since your last visit to the dentist.
And while cosmetic procedures such as teeth whitening are not allowed, you still can get a bit of a smile boost courtesy of your FSA funds. “One thing you can spend the money on is getting another teeth cleaning,” says tax attorney Donna LeValley-Cocovinis. “If you can’t get the whitening, the cleaning never hurts.”
Don’t forget about your routine annual physical exam. If your insurance doesn’t pay or only covers a limited amount for preventative care, using your FSA to cover it is a good financial and health care move. This could include skin-cancer screenings and cholesterol checks. “Go for a checkup, spend out your account and then know you’re OK,” says LeValley-Cocovinis.
FSA cash also is great for paying for alternative treatments that are generally not covered by health plans, such as acupuncture or chiropractic therapy.
Vision care is another area, says LeValley-Cocovinis, where employer health care plans offer little or no coverage. Your FSA money can be used to pay for eye exams, a new or extra pairs of glasses and even LASIK eye surgery.
“Prescription glasses, especially sunglasses, are expensive, but having an extra pair is useful,” says LeValley-Cocovinis. “And don’t forget about extra contact lenses, especially the disposable ones.”
The same holds true if you’re having trouble hearing. Sometimes pride prevents people from admitting they need hearing aids, but often the costs of an examination and the hearing device can also be roadblocks. An FSA can help with the financial component, including the purchase of extra hearing aid batteries.
Replenish medicine cabinets
It’s no secret you can use FSA money to compensate for any prescription co-payments.
If you need to refill some prescriptions now, LeValley-Cocovinis suggests buying in bulk. But FSA money also can be used for many over-the-counter medications.
Pick up extra headache medications, as well as cold medications to combat those early spring sniffles that always seem to show up this time of year. “You want to look at the expiration date, but there’s no reason not to go to the local drugstore now and buy everything you use,” says LeValley-Cocovinis.
Consider replenishing or purchasing a first-aid kit. “Get yourself a really good first-aid kit,” says LeValley-Cocovinis. “Since it will qualify as a medical expenditure, get the big one, the $50 one. The Mylar blanket, the ice pack and all the items can really come in handy.”
Other often-overlooked FSA items LeValley-Cocovinis says you might want to pick up while you’re at the drugstore include OTC contraceptives and Rogaine. Medical equipment such as blood-pressure monitors, thermometers, and neck, wrist or other joint braces also qualify for FSA reimbursement, as do dietary supplements, including vitamins, minerals, and herbal and botanical items — as long as you use them to treat a current illness, not simply to augment your general health.
If you’re unsure about exactly which OTC items your FSA will cover, ask your benefits manager or plan administrator. Many grocers and drugstores also help out customers with cash register receipts that note FSA-eligible purchases.
Drugstore.com, the online version of your local pharmacy, also has a special “FSA store” featuring OTC products most commonly reimbursed from the accounts. Even if you don’t want to buy from the site, it’s a good place to browse for ideas on how to zero out your FSA.
Fine-tuning your FSA
As you are trying to wipe out your FSA balance, it’s also a good time to think about refining your annual contribution. Although it’s probably too late to make changes for the 2009 benefit year (most companies hold open enrollment seasons each fall), you can make changes if there’s a substantial change in your life. This includes the birth or adoption of a child or a change in your spouse’s work status. If that happens, you can adjust your account contributions to better match your new medical needs.
Even if you can’t change your FSA contribution amount, track your 2009 medical costs closely. Knowing exactly what your medical expenses are and which ones aren’t covered by insurance will help you decide just how much to put into an FSA the following year.
“People are nervous about wasting the money, but if you plan ahead you can still save on federal taxes, FICA (Social Security) and in a lot of cases, state income taxes,” says LeValley-Cocovinis.