How to Use Up FSA Money Before You Lose It

A Flexible Spending Account (FSA) allows individuals to set aside pre-tax dollars for eligible healthcare expenses, providing a tax advantage by reducing taxable income. This employer-sponsored benefit helps manage out-of-pocket medical, dental, and vision costs not covered by other health plans. FSAs operate under a “use-it-or-lose-it” rule, meaning funds must be spent within a specific timeframe to avoid forfeiture. This article provides guidance on effectively spending FSA funds.

Understanding Eligible Expenses

A wide array of medical, dental, and vision expenses are eligible for FSA reimbursement, as outlined by IRS guidelines, such as IRS Publication 502. These typically include deductibles, co-payments, and co-insurance amounts for various healthcare services. Eligibility criteria are broad, covering many common healthcare needs for the account holder, their spouse, and any dependents.

Medical expenses cover services and products for diagnosis, treatment, or prevention of disease. This includes doctor visits, prescription medications, insulin, and certain prescribed vitamins. Equipment like crutches, wheelchairs, blood pressure monitors, and breast pumps also qualify. The Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded eligibility to include over-the-counter (OTC) medications and feminine hygiene products without requiring a prescription. Common items like pain relievers, cold and flu remedies, antacids, allergy medications, and first-aid supplies are now FSA-eligible. Sunscreens with an SPF of 15 or higher and lip balm are also often included.

Dental care expenses cover most treatments performed at a dentist’s office, provided they are not purely cosmetic. Eligible services include routine cleanings, X-rays, fillings, extractions, and fluoride treatments. Major procedures such as crowns, bridges, dentures, and implants are typically covered. Orthodontic treatments, including braces and Invisalign, can be paid for with FSA funds.

Vision expenses are broadly eligible for FSA reimbursement. This category includes eye exams, prescription eyeglasses, prescription sunglasses, and contact lenses. Related supplies such as contact lens solutions and cases also qualify. Procedures like LASIK and cataract surgery, when medically necessary, are eligible expenses.

While eligibility broadly follows IRS rules, specific plan details can vary. It is always advisable to confirm with the FSA plan administrator before making significant purchases. Items like toothbrushes, toothpaste, and dental floss are generally considered “general health” products and are not eligible. Cosmetic procedures, such as teeth whitening or non-corrective blue-light glasses, are typically excluded from FSA coverage.

FSA Deadlines and Fund Management

Flexible Spending Accounts operate under the “use-it-or-lose-it” rule, established by the IRS under IRS Code Section 125. This rule mandates that FSA funds must be spent on eligible expenses by the end of the plan year, or any remaining balance is generally forfeited. This ensures FSAs are used for current healthcare needs, not long-term savings.

To mitigate the “use-it-or-lose-it” rule, employers can offer one of two exceptions: a grace period or a carryover option. These provide flexibility to use funds beyond the standard plan year. Employers are not required to offer either.

A grace period allows employees an extended timeframe, typically up to two and a half months, into the new plan year to incur and pay for eligible expenses using the previous year’s funds. For a calendar-year plan ending on December 31st, this extension usually lasts until March 15th of the following year. Any funds still remaining after the grace period concludes are then forfeited.

Alternatively, employers may permit a carryover of a limited amount of unused funds into the next plan year. For the 2025 plan year, the maximum amount that can be carried over is $660. This carried-over amount does not affect the maximum contribution limit for the new plan year, allowing employees to contribute the full allowable amount for the current year in addition to the rolled-over funds.

Practical Strategies for Spending Funds

Proactive planning ensures full utilization of FSA funds before the deadline. Regularly reviewing your FSA balance helps identify shortfalls or surpluses, allowing timely decisions on how to spend remaining funds on eligible healthcare items and services.

One effective strategy involves scheduling medical, dental, or vision appointments that may have been deferred. Annual physicals, dental check-ups, eye exams, or follow-up appointments can often be scheduled towards the end of the plan year or within a grace period. Elective procedures or consultations for chronic conditions can also be considered.

Stocking up on eligible over-the-counter (OTC) medications and first-aid supplies is another practical approach. Items like pain relievers, allergy medications, cold and flu remedies, bandages, and thermometers are typically eligible and have a long shelf life. This allows individuals to build a supply of essential household medical items without incurring out-of-pocket costs later.

Purchasing eligible medical devices or supplies can also help deplete an FSA balance. Examples include blood pressure monitors, glucose meters, contact lenses, or prescription eyeglasses. For those with ongoing needs, ordering a year’s supply of contact lenses or refilling prescriptions for chronic conditions can be a strategic use of funds.

Considering future healthcare needs can guide spending decisions. For instance, if new prescription eyeglasses or contact lenses are anticipated in the coming months, purchasing them before the deadline can be beneficial. Individuals should keep all itemized receipts for purchases made, even if using an FSA debit card, as these are crucial for substantiation if requested by the plan administrator or the IRS.

FSA Card Usage and Reimbursement Process

Many FSA plans provide a dedicated debit card, linked to the FSA account. This card allows direct payment for eligible healthcare expenses at the point of sale, eliminating the need for upfront payments and reimbursement claims. When using the FSA debit card, select “credit” even though it draws directly from your FSA balance.

Despite the convenience of an FSA debit card, retaining all itemized receipts for purchases is crucial. The IRS requires all FSA transactions to be substantiated as eligible expenses. Documentation must include the patient’s name, provider or merchant’s name, date of service or purchase, a description of the item or service, and the exact dollar amount.

For expenses paid out-of-pocket, typically when an FSA debit card is not used or accepted, individuals must submit a reimbursement claim. This process usually involves obtaining a claim form from the FSA administrator, often available through an online portal or website. The completed form, along with the required supporting documentation, is then submitted for review.

Acceptable documentation includes itemized receipts, Explanation of Benefits (EOB) forms from insurance carriers, or detailed statements from healthcare providers. EOBs are useful as they detail services, charges, insurance payments, and the remaining amount owed. Claims can be submitted online, via mail, or fax.

After submission, claims are processed, usually within one to two business days, though processing times can vary. If the claim is approved, reimbursement is typically issued through direct deposit to a linked bank account or by check. If documentation is requested after an FSA debit card purchase and not provided within the timeframe (often 90 days), the claim may be denied, and the FSA debit card could be suspended. Non-compliance with substantiation rules can lead to the disallowance of the FSA’s tax-advantaged status.