Can FSA Be Used for Previous Year Expenses?

A Flexible Spending Account (FSA) is a tax-advantaged financial account that allows individuals to set aside pre-tax money for eligible healthcare expenses. Many people utilize FSAs to manage medical costs, but a common question arises regarding the use of these funds for expenses incurred in a previous year. Understanding the specific rules governing FSAs is important for maximizing their benefits and avoiding forfeiture of funds.

Understanding the Plan Year and Eligibility

FSA funds operate on a plan year, which is typically a 12-month period defined by your employer. Eligible expenses must be “incurred” within this specific plan year. The term “incurred” refers to the date the medical service was provided or the eligible item was purchased, not the date you paid for it or submitted a claim for reimbursement. For example, a doctor’s visit in December of one year cannot typically be paid with FSA funds from the following year.

This principle is often referred to as the “use-it-or-lose-it” rule, meaning that any funds remaining in your FSA at the end of the plan year are generally forfeited. This rule is a primary reason why it is generally not possible to use current year FSA funds for expenses incurred in a previous plan year.

Grace Periods and Carryovers

While the “use-it-or-lose-it” rule is a general principle, there are two primary exceptions. Some FSA plans may offer a grace period, which typically extends the time to incur new eligible expenses by up to 2.5 months immediately following the end of the plan year. For instance, if your plan year ends on December 31st, a grace period might allow you to incur new expenses until March 15th of the following year and use your previous year’s FSA balance to cover them.

Alternatively, some employers may offer a carryover option, allowing a limited amount of unused FSA funds to be rolled into the next plan year. The IRS has set the maximum carryover amount at $640 for plan years beginning in 2024, and $660 for plan years beginning in 2025. These carried-over funds can then be used for expenses incurred in the new plan year.

It is important to note that a plan will typically offer either a grace period or a carryover, but not both. These provisions help mitigate the strict “use-it-or-lose-it” rule by providing additional time or flexibility for managing your healthcare savings.

Claim Submission Deadlines

Separate from grace periods or carryovers, FSA plans also have claim submission deadlines, often referred to as a “run-out period.” This is the administrative timeframe during which you must submit claims for eligible expenses that were already incurred within the plan year, or any applicable grace period. For example, if you had a medical procedure in December, but did not receive the bill until January, you would submit the claim during the run-out period.

This deadline is specifically for filing the necessary paperwork for reimbursement, not for incurring new expenses. The length of the run-out period can vary, but it commonly ranges from 30 to 90 days after the plan year or grace period concludes. To understand the exact grace period, carryover, and run-out period dates applicable to your specific account, it is important to consult your plan’s Summary Plan Description (SPD) or contact your plan administrator directly. This ensures that you submit all eligible claims within the required timeframe to receive reimbursement for your healthcare costs.