Recently, we looked at 5 ways you can still increase your 2010 tax return! You’ll notice that using up your entire flexible spending account was listed under additional tips – that is because of the way in which an FSA is structured. For those who have a Flexible Spending Account, you have a limited amount of time to take advantage of it for 2010.
Typically, if your employer allows you to establish a Flexible Spending Account, this is how it looks: You get paid from your job, and BEFORE taxes are calculated, a portion is moved into another account that you use to make medically related purchases (before the applicable deadlines), then taxes are taken out and you receive a net pay.
For many FSA plans, you can only apply medically-related purchases/expenses that occur between January 1 and December 31 of the plan year. Some plans may give you a grace period, where you can use the funds to cover expenses that happen a month or two after December 31, so check with your plan administrator to be sure.
Either way, you do not have much time to drain your account to $0 before the deadline!
What’s the Risk?
The biggest downside to having an FSA is the fact that you are not allowed to carry over unused funds to the next plan year. This “use it or lose it” clause can be difficult to navigate especially since you are not allowed to change your contribution amount (unless you have a qualifying event) during the year.
Before the year starts you have to come up with an estimate of the amount of medical expenses you will have in the next year. And if during the year you realize that your estimate was too high, you will not be able to change it.
That means that if you set aside $2,000 and only spent $1,500 by Christmas, you can’t go back to them and reduce your commitment by $500. You must spend that extra $500 before the deadline, or lose it forever. Actually, the money is returned to your employer in accordance with IRS guidelines.
How Can I Avoid Losing My Money?
Because of the “use it or lose it” clause, the only way to avoid losing your money is to spend it before the deadline passes! Since there will be massive changes to the list of flexible spending account eligible expenses for 2011, my suggestion is to go out and stock up on over-the-counter medication (taking advantage of CVS deals, if you can)!
Another often overlooked option is to submit a claim for all of your medically-related mileage during the plan year. This includes trips to your doctor’s office, hospitals, and even pharmacies to pick up prescriptions!
Also, you should look through your bank records to see if you paid for doctor visits or a similar expense from your bank account; or check grocery and drugstore receipts to make sure you were reimbursed for all eligible expenses.
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photo by CarbonNYC
