Can You Use FSA for Previous Year’s Expenses?
Navigate the complexities of using your Flexible Spending Account for past healthcare costs. Understand the key timing rules and available options.
A Flexible Spending Account (FSA) allows individuals to set aside pre-tax dollars for eligible healthcare expenses. While offering tax advantages, FSAs are typically governed by a “use it or lose it” rule, meaning unspent funds are generally forfeited at year-end. This often raises questions about covering past expenses. This article clarifies the rules and provisions for flexibility.
Understanding the Expense Incurred Date
The fundamental principle for Flexible Spending Accounts is that funds can only be used for eligible expenses incurred within the designated plan year. An expense is “incurred” on the date the service was provided or item purchased, not when the bill was received or paid. For example, a procedure in December, billed in January, is still a previous year’s expense. This means prior year expenses are generally not eligible for reimbursement once that plan year concludes.
Each FSA operates on a defined plan year. While a “run-out period” often extends for 90 days after the plan year, this is only for submitting claims for expenses incurred during the preceding year, not for new ones.
Grace Periods and Carryover Provisions
While the “use it or lose it” rule is standard, the IRS allows employers to offer two optional provisions for flexibility: a grace period or a carryover. A plan can offer one, but not both. These provisions mitigate the strict forfeiture rule, giving participants more time to use funds.
A grace period permits an additional period, up to two and a half months, after the plan year. During this time, individuals can incur new eligible expenses using previous year’s funds. For example, a plan ending December 31st might extend to March 15th.
Alternatively, some plans offer a carryover, allowing a limited amount of unused FSA funds to roll into the next plan year. For 2025, the maximum carryover is $660. This amount does not reduce the maximum contribution for the new plan year. Whether a plan offers these, and their specific limits, is at the employer’s discretion; reviewing plan documents is advisable.
Submitting Claims and Required Documentation
After an eligible expense is incurred, submit a claim for reimbursement. Accurate documentation is necessary for successful processing. Primary documents include itemized receipts or Explanation of Benefits (EOB) statements. These must clearly display the patient’s name, service provider, date of service or purchase, a description of the item or service, and the total amount charged.
For prescription medications, a detailed pharmacy summary or receipt with the medication label is typically required. Many FSA administrators offer online portals or mobile applications for convenient claim submission. If a claim is denied, reviewing the reason and providing missing information can lead to a successful appeal.