It pays to know these FSA rules
A Flexible Spending Account (FSA) offers tax advantages that save you money. Because FSA contributions are deducted from your pay before income taxes are calculated, your taxes are lowered — and your savings increase! FSAs are also a great way to automatically budget for expenses you expect to have during the year. But the IRS has imposed strict rules on FSAs that you must follow. And, just recently, Congress passed legislation that changed some of these rules.
Here are some tips based on the latest FSA rules that can help you get the most from your FSA(s), whether you have one now or are planning to enroll during the next benefits enrollment opportunity.
All FSAs
- Pay attention to deadlines – FSAs have always had a “use it or lose it” rule, which gives you a certain amount of time to spend your FSA money. Review your most recent account information to confirm your spending deadline and your claim submission deadline, which are different dates. The claim submission deadline extends beyond the spending deadline, so you have time to turn in any outstanding receipts or forms.
Health Care FSAs
- Spend FSA money with more flexibility – Since the passage of the CARES Act, you no longer need a prescription to use Health Care FSA money for over-the-counter medications, such as pain relievers, cold medicine, and allergy medication. You can also buy feminine care products, such as tampons, pads, and liners, with your FSA.
- Provide the right documentation – When submitting FSA claims, not just any old receipt will do. Make sure you have complete documentation that shows all the required information, which may include a description of the service or product that was purchased, the name of the person who received it, the name of the provider it was purchased from, the date it was provided, and the amount paid.
- Shop online – Websites like fsastore.com sell only FSA-eligible items, making it easy to apply your tax-free money to a wide range of purchases before your spending deadline. You can pay with your FSA debit card. (While most card purchases are approved without the need to submit further paperwork, you may need to substantiate your claim.) Amazon, Walgreens, and other retailers also offer online FSA-eligible stores.
Dependent Care FSAs
- Check that your expenses are eligible – Dependent Care FSAs are used to pay for day care expenses for children under age 13 or dependent adults so you and your spouse can work, look for work, or attend school full time. This account is not for your dependent’s health care expenses.
- Update your account if your situation changed – If your child’s summer camp isn’t running this year, your child’s preschool shut down, or your day care center increased its fees, that qualifies as a life event, giving you the chance to update your contributions midyear.
- Watch your balance – Unlike a Health Care FSA that gives you access to your entire year’s contribution amount from the beginning of the plan year, you can only spend Dependent Care FSA money that you have actually deposited into your account. This may mean holding off on requesting reimbursement until your balance is high enough to cover an expense.
Do you know what expenses are eligible?
Use this fun interactive quiz to see if you know which expenses can be paid with FSA money and which cannot.
Source(s): “New Rules for Medical and Dependent Care FSAs,” U.S. News & World Report (money.usnews.com), June 26, 2020.