FSA stragglers: It's time to use it or lose it

If you’re one of the millions of Americans with a flexible spending account (FSA), it’s almost time to use it or lose it.

The employer-sponsored savings accounts, which enable workers to pay for medical bills, prescription drugs, medical devices, babysitters and other qualified expenses with pretax earnings, require most account holders to drain their remaining balance by Dec. 31. If they don’t, some or all of that money could be lost. 

This should be a major concern for those who participate: According to FSAstore.com, an online marketplace for FSA-eligible products and services, U.S. workers forfeited more than $1 billion last year in unused FSA savings.    

“People don't realize there's thousands of everyday consumable products that they can pay for with their FSAs,” said Zack Peckham, CFO of FSAstore. “Sunscreen, Advil, Band-Aids, ice packs: you can buy all this stuff and more tax free” if you have an FSA.  

If you don’t want to forfeit your unspent FSA, here’s what you need to know:

What's the deadline? 

FSAs help people save hundreds of dollars a year on the kind of crucial expenses that are tough to neglect.  

Here's how they work: Every year, participating employees tell their employers how much FSA money they want to save, and the employer then withholds a pretax portion of their paychecks to fund the account over the course of the year. Those funds can be tapped to reimburse the employees for a variety of qualified expenses, including a lot of over-the-counter items that can be found at the pharmacy.  

But there’s a catch.

Generally, the account needs to be drained by the end of every year. Unused funds go back to the employer.

 The IRS does give stragglers some wiggle room here with the spending deadline, though the options for getting around it depend on your employer.

What happens if I still have money in my FSA? 

If you haven’t spent all of your FSA money by now, you may have a couple of last-minute options to use that cash.

Some employers give FSA account holders another 2 1/2months to spend their final 2023 funds. Others let employees move some of their remaining funds to next year's account — though, be warned, there is a limit to how much the IRS will let you carry over.

This year, for example, the carry-over option is limited to a maximum of $610. If you have more than that in your 2023 FSA account, you'll forfeit whatever is left. 

Employers can only offer one of those last-minute options to employees, not both. And some employers may elect to keep the Dec. 31 deadline without any extensions or carry-over options.  

It’s best to discuss with your company’s human resources team to learn more about which options are available to you. 

How do I check my FSA balance? 

Your company’s human resources manager or your FSA provider should be able to help you find this information. Many companies also have created online benefits portals that can help employees retrieve their FSA balances.

What’s new for 2024? 

Next year, the IRS will increase the amount that employees can contribute to an FSA, as well as the amount that they can carry-over. The contribution limits for health FSAs will rise to $3,200 per person in 2024, up from $3,050 this year. The carry-over limits also will increase next year to $640, up from $610 this year. 

The IRS kept contribution limits at $5,000 per household, however, for the dependent-care FSA.  

I’d like to get an FSA. How do I sign up?

The IRS open enrollment period already has ended for FSA for next year. New employees can still enroll if they do so within 60 days of their start date, however. The IRS also allows workers to apply for FSA outside of the enrollment period if they experience a “qualifying life event” such as a change to the employment status of someone in their family, a marriage or divorce, or if they have a baby.