As the year wraps up, it is a good time to remind employees to review their Flexible Spending Account balances. FSAs offer tax savings, but they also come with deadlines that can affect whether unused funds stay available or expire. HR can help employees make informed decisions by communicating the rules clearly and encouraging timely spending.
Use It or Lose It Rule
FSAs operate under the use it or lose it rule. This means any funds left in the account at the end of the plan year may be forfeited if your plan does not offer carryover or a grace period. Employees should check their current balances and consider upcoming eligible expenses such as prescriptions, glasses, dental work, and over-the-counter items.
Carryover Option
Some employers offer a carryover feature that allows employees to keep a portion of unused funds and move them into the next plan year. The IRS sets an annual limit on how much can be carried over. If your plan includes this option, employees should still review their balances because any amount above the allowable carryover will be forfeited.
Grace Period Option
Other plans offer a grace period, which allows employees extra time after the plan year ends to incur eligible expenses. A grace period usually lasts up to two and a half months. It can help employees who need a little more time to use remaining funds, but balances do not carry forward beyond the grace period.
Helping Employees Take Action
HR can support employees by sending reminders, sharing tips on eligible expenses, and encouraging them to review their account activity. Simple communication helps employees avoid losing money they set aside and ensures they get the full benefit of their FSAs.
By taking a few minutes to check balances and plan purchases, employees can make the most of their FSA dollars before year-end.
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This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.
