If You Have a Flexible Spending Account, You May Need to ‘Use It Or Lose It’ By New Year’s Eve

Lots of people are nursing budgetary hangovers after spending too much on the holidays, but there’s one more spending spree they might want to consider: Using any remaining flexible spending account funds before New Year's Eve.

Almost half of employees have forfeited some money from their FSAs in recent years, with the average loss of between $339 to $408, according to the Employee Benefits Research Institute.

The benefit, which is optional, puts pre-tax funds from paychecks into accounts that can be accessed using a dedicated debit card or by submitting receipts for reimbursement.

Using the money for health-related purchases saves people anywhere from 15% to 50%, depending on what state they live in and what their tax bracket is, said Dan Roccato, a finance professor at the University of San Diego. The funds set aside in FSA accounts are exempt from federal income tax, payroll deductions related to Social Security and, in most cases, state income taxes.

“It’s really a no-brainer — as long as you don’t forget to spend the money on eligible products by the deadline,” Roccato said. “If you don’t use it, you forfeit the funds.”

Some FSA plans give workers options to use some of the money in the following year. Some allow employees to carry over up to $610 from one year to the next while others provide a grace period of up to two and a half months, moving the spending deadline to March 15.

What’s the safest bet for anyone who doesn’t know for sure whether their company allows them to roll over unspent FSA funds? 

“Spend it by close of business on New Year’s Eve,” Roccato said. “You can go and buy bandages or lots of other items at your local pharmacy, or you can order new glasses or contacts. All you need is a receipt showing the purchase was made by Dec. 31.”

One way to use the funds is to shop online. For example, you can add your FSA debit card as a payment option for online retailers such as Amazon. To find Amazon’s “FSA store,” put “fsa eligible items” in the search bar. 

Or, you can shop at a specialty website like FSAstore.com. If your purchase is denied for not being an eligible FSA product, the company has a guarantee: It will either help you prove the eligibility of the item, or it will refund the money if you show proof the claim was denied.

Another way is simply to go to your local pharmacy or big-box retailer and buy items to restock your medicine cabinet. The list of eligible medical expenses that qualify for FSA funds was expanded by Congress in 2020 to include items as varied as hand sanitizer, at-home COVID-19 tests, and menstrual products. 

For 2023, employees were allowed to set aside up to $3,050 in FSAs. In early December, the Internal Revenue Service announced the amount would increase by $150 to $3,200 in 2024. 

The IRS, which doesn’t usually get involved in shopping suggestions, included in its announcement some strategies for using the funds, including, “Updating medicine cabinet with necessary supplies,” and “seasonal needs such as allergy products, sunscreen or warm steam vaporizers.”

And, of course, the IRS suggestions included the standard uses for FSAs, such as any costs for visiting doctors, dentists, or eye care providers that aren’t covered by insurance. 

Other uses for FSAs, not mentioned by the IRS, are prescription drugs, acupuncture, chiropractic care, and psychological health services such as therapy. 

“I tell people just go out to CVS and stock up on supplies, or go online and order eligible items,” said Rocatto. “You don’t have to have the products in hand by Dec. 31. You just have to have spent the money.”