What You Need to Know About the FSA Deadline and Grace Periods

Flexible Spending Accounts (FSAs) are a valuable tool for managing healthcare expenses with pre-tax dollars. However, understanding key deadlines and provisions is essential to maximizing their benefits and avoiding financial loss. As the year ends, being aware of FSA deadlines and employer-offered grace periods can help you make the most of your funds.

Claim Submission Requirements

Submitting claims for FSAs requires adhering to specific rules set by your plan administrator. The IRS mandates that expenses must be incurred during the plan year to qualify for reimbursement. The date of service, not the payment date, determines eligibility. For instance, if you receive medical treatment on December 30, 2024, but pay in January 2025, the expense qualifies for the 2024 plan year.

Claims must include appropriate documentation, such as itemized receipts or Explanation of Benefits (EOB) statements detailing the service, date, and amount. Some plans may also require a letter of medical necessity for specialized treatments or equipment. Keeping thorough records helps avoid delays or denials.

Most FSA plans include a “run-out period,” a window after the plan year ends when you can submit claims for the previous year’s expenses. This period often extends to March 31 of the following year, but deadlines vary by plan. Missing this deadline can result in forfeited funds due to the “use-it-or-lose-it” rule.

Documentation for Eligible Medical Expenses

Accurate documentation is crucial for FSA reimbursements. The IRS defines eligible expenses as those related to medical care, dental services, vision care, and certain over-the-counter medications. Cosmetic procedures and non-essential treatments are generally excluded.

Required documentation includes itemized receipts with the provider’s name, type of service, date, and amount paid. EOB statements from insurers are also commonly used. A letter of medical necessity may be required for expenses like alternative therapies or specialized equipment.

Incomplete or unclear records can result in claim delays or denials. Maintaining organized records for several years is advisable, as the IRS can audit FSA claims. Many FSA administrators provide online tools for uploading and tracking documentation, simplifying the reimbursement process.

Run-Out Period Details

The run-out period offers participants additional time—often up to March 31—to submit claims for the previous year’s expenses. This allows time to gather necessary documentation and avoid forfeiting funds. Deadlines vary, so confirm specifics with your plan administrator.

Ensure all claims submitted during this period are complete and accurate. Staying informed about updates to tax codes or employer policies is also important, as these can affect reimbursable expenses. Many administrators provide online tools to track claims and balances, helping participants avoid missed deadlines or incomplete submissions.

If Your Employer Offers a Grace Period

Some employers offer a grace period, allowing employees to use remaining FSA funds for new expenses incurred early in the following year. This extension, typically lasting up to two and a half months, provides flexibility for managing expenses without losing unused funds.

Unlike the run-out period, which is for submitting claims for the prior year, the grace period allows new expenses to be reimbursed with the previous year’s funds. This is particularly useful for planning non-urgent procedures or purchasing medical supplies. Check with your HR department or plan administrator to confirm if this option is available.

What Happens to Unused Balances

The IRS’s “use-it-or-lose-it” rule requires that unused FSA funds be forfeited at the end of the plan year or applicable grace period. To mitigate this, some employers offer a carryover option, allowing participants to roll over a limited amount of unused funds into the next year. For 2023, the maximum carryover amount was $610, subject to annual adjustments for inflation. Any funds exceeding the carryover limit are forfeited.

If your employer does not offer a carryover option, proactive planning is essential to avoid losing funds. Estimate annual healthcare expenses carefully during open enrollment. Tools like expense tracking apps or past medical expense reviews can help refine estimates. If you have a surplus near year-end, consider eligible purchases like prescription eyeglasses or first-aid supplies to use remaining funds.

By understanding deadlines and available options, you can maximize the tax advantages of your FSA while minimizing potential losses.