Planning for End of Year Expenses for Flexible Spending Accounts
The end of the plan year is quickly approaching for many flexible spending accounts (FSAs). Many participants may be wondering what happens at the end of the plan year and how do I wrap up any outstanding claims.
There are three primary scenarios (determined by your plan document) that govern year end claim eligibility and timelines for FSAs.
Some plans offer a grace period. This is an additional amount of time after the end of the plan year, up to two and a half months, that allows participants to incur expenses that can be claimed from the prior plan year’s funds. Once the grace period has ended, there is normally an amount of time to submit claims for reimbursement. Grace period can apply to both health FSAs and dependent daycare FSAs.
Run out is the amount of time after the plan year has ended which allows participants to submit claims for reimbursement for that plan year. Expenses can no longer be incurred, but this allows participants time to gather receipts and submit claims. Both health FSAs and dependent daycare FSAs have a run out time period.
Rollover is new to the FSA benefit in the last several years. The IRS updated the Use-it-or-Lose-It rule to allow up to $500 of unused funds to roll into the new plan year for health FSAs. This rule does not apply to dependent daycare FSAs.
Regardless of which feature is included in an FSA, most plans have some option that allows participants the opportunity to make final claims for the plan year. Details of each plan can be found in the Summary Plan Description and should be confirmed so participants know how to properly manage their account.
BusinessPlans, Inc. – myCafeteriaPlan does not intend to provide legal or tax advice and information contained in this article should not be interpreted as such. Regulations governing pretax plans are often open to interpretation and should be reviewed with your legal or tax advisor before making any decisions regarding your plan.