Flexible Spending Account Eligible Expenses Archives

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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Best of Credit Cards and Saving Money – Cash Money Edition

photo by CarbonNYC

Those of you who have been following my recent CVS shopping trips know that I have a flexible spending account. However, the list of Flexible Spending Account Eligible Expenses will see some major changes for 2011!

How a Flexible Spending Account normally works – before the changes to the list of Flexible Spending Account Eligible Expenses for 2011 – is that one has money taken out of their paycheck to cover medical expenses that their insurance doesn’t pay for – such as deductibles, co-payments and co-insurance, and over-the-counter medicine. This comes out BEFORE taxes, so they automatically get a tax “write-off” for their medical expenses!

For a full explanation of a flexible spending account and to see why I love them so much, please read, our article covering the basics of a flexible spending account.

As far as CVS purchases, I would use my FSA to buy any medically-related item that offered cash back. This way I could get money (ECBs) from CVS without spending a dime from my bank account!

So, what’s changing to the list of Flexible Spending Account Eligible Expenses for 2011?

As part of the Patient Protection and Affordable Care Act (Obamacare) that was signed into law back in March, there will be massive changes to FSAs and HSAs (Health Reimbursement Arrangements).

Effective January 1, 2011 you will no longer be able to be reimbursed for the cost of an over-the-counter drug, unless you get a prescription first!

According to a recent communication from the IRS:

The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles.

The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

So, if you used your FSA to purchase up on Tylenol, Nyquil, and other OTC drugs, you better stock up by December 31, 2010!

Plan wisely for next year:

When you decide how much to contribute for next year during open enrollment, keep these changes to the flexible spending account eligible expenses in mind – because you will lose any amount not spent by the deadline. I already know that I’m going to contribute a lot less than this year!

Of course, since we now know that the Bush tax cuts are going to be extended, it will be a little easier to plan for 2011. It would also be wise to consider a few of the best investments for 2011, in order to be able to react to any economic or legislative change.

Need more information?

For details on how FSA’s and HSA’s are governed, see Publication 969 , Health Savings Accounts and Other Tax-Favored Health Plans.

To learn more about taxes, please visit KNS Financial’s Tax Guide.

photo credit: CarbonNYC

Flexible Spending Account Deadlines: Use it or Lose it!

What’s the Risk?

How Can I Avoid Losing My Money?

This post was featured in the following blog carnivals:

Devastating Changes Coming for Flexible Spending Arrangements (FSA’s)

So, what’s changing to the list of Flexible Spending Account Eligible Expenses for 2011?

What’s the Risk?

How Can I Avoid Losing My Money?

This post was featured in the following blog carnivals:

So, what’s changing to the list of Flexible Spending Account Eligible Expenses for 2011?

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