Can You Use FSA for Prior Year Expenses?

Understanding Flexible Spending Accounts

A Flexible Spending Account (FSA) offers a tax-advantaged way for individuals to pay for eligible healthcare or dependent care expenses. These employer-sponsored accounts allow participants to contribute pre-tax dollars from their paycheck, which can then be used throughout the plan year for qualified expenditures. FSAs are generally subject to a “use it or lose it” rule, meaning funds not utilized by the end of a specific period may be forfeited.

Understanding FSA Eligibility and Plan Year

To be eligible for reimbursement from an FSA, expenses must fall within specific categories and be incurred during a defined plan year. Eligible expenses commonly include medical, dental, and vision care costs, such as deductibles, co-payments, and prescription medications. For Dependent Care FSAs, qualifying expenses cover care for a child under age 13 or a spouse/dependent incapable of self-care, allowing the account holder and their spouse to work or look for work.

The “plan year” dictates when expenses must be incurred to be eligible for reimbursement from a particular year’s funds. While many employers align their FSA plan year with the calendar year (January 1st to December 31st), some may use a different 12-month cycle, such as July 1st to June 30th. Participants should confirm their specific plan year with their employer or plan administrator.

Expenses must be incurred within the designated plan year for which the FSA funds were allocated. For example, an expense incurred in December of one plan year cannot be reimbursed with funds from the subsequent plan year. This ensures expenses are correctly matched to available FSA funds.

Claim Submission Deadlines

After an FSA plan year concludes, participants are granted an additional period to submit claims for expenses incurred during that previous year. This timeframe is known as the “run-out period” or “claims submission deadline.” Its purpose is to allow account holders to gather necessary documentation and request reimbursement for qualifying expenses that occurred before the plan year officially ended. The run-out period is solely for submitting claims for previously incurred expenses, not for incurring new ones.

The duration of the run-out period is determined by the employer’s plan document. Common run-out periods range from 60 to 120 days after the plan year ends. For example, a plan year ending on December 31st might have a run-out period extending until March 31st or April 30th of the following year. Participants should consult their plan’s summary plan description or benefits administrator to confirm their specific run-out period.

Submitting claims within this window is essential to avoid forfeiting unused funds from the prior plan year. If a participant fails to submit claims for eligible expenses incurred during the prior plan year before the run-out period expires, any remaining balance for that year may be lost. This period allows individuals time to collect itemized receipts and Explanation of Benefits (EOBs) from their insurance provider.

Grace Periods and Carryovers

Beyond the standard claim submission deadline, employers may offer provisions that provide exceptions to the “use it or lose it” rule. Employers can implement either a grace period or a carryover provision, but not both simultaneously.

A grace period allows participants an extended timeframe, typically up to two and a half months (2 months and 15 days), into the new plan year. During this period, participants can incur new eligible expenses and use funds from the previous plan year to cover them. For instance, if a plan year ends on December 31st, a grace period could extend until March 15th of the following year. Expenses incurred during this grace period are treated as if they were incurred in the prior plan year for funding purposes.

Alternatively, some employers may offer a carryover provision, which permits a limited amount of unused FSA funds from the prior plan year to be rolled over into the new plan year. The Internal Revenue Service (IRS) sets an annual maximum for the amount that can be carried over, subject to periodic adjustments. For example, if the IRS-defined maximum carryover is $610 for the 2023 plan year, unused funds up to that amount from 2023 could be added to the participant’s 2024 FSA balance. Funds carried over become part of the new year’s available balance and can be used for expenses incurred in the new plan year.

The decision to offer a grace period, a carryover, or neither, rests with the employer and is specified in the FSA plan document. Participants should verify which, if any, of these provisions apply to their specific FSA.

Submitting a Reimbursement Claim

Once eligibility is confirmed and documentation prepared, submitting a reimbursement claim to an FSA administrator is the next step. The method for submission varies by plan, commonly including online portals, mobile applications, or mail-in forms. Participants should verify their plan’s preferred submission method.

Documentation required to substantiate a claim includes an itemized receipt from the service provider, showing the date of service, type of service, amount paid, and recipient. For medical expenses, an Explanation of Benefits (EOB) statement from the insurance company is often necessary, detailing how the claim was processed.

Submit accurate and complete documentation to avoid delays or denials. Many plans require claims to be signed, attesting to the expense’s eligibility. Participants should retain copies of all submitted claims and supporting documentation for their records.