The end of the year is just around the corner, and employees may still have sizable balances in their health care flexible spending accounts (FSAs). People know the mantra leading up to Dec. 31 is generally "use it or lose it." However, the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act, 2021, created flexibility for companies to extend rollover dates.
Some businesses extended the 2020 rollover deadline to the end of 2021. Others pushed that date through Dec. 31, 2022. But employees may not realize this or understand the new deadlines, which could mean losing out on unused funds. FSA Store, an online marketplace for FSA-eligible products, estimates account holders forfeit more than $500 million in a typical year; it predicts forfeitures will be much higher this year.
"Our recent research of consumers who shop FSAstore.com shows that people are more confused than ever about their deadline, and this confusion may actually be increasing," said Rachel Rouleau, vice president of compliance for FSA Store.
In a survey of 3,600 FSA Store shoppers:
- 50 percent indicated they are not confident that they understand the recent FSA deadline and rollover changes.
- 75 percent have not been notified of their deadline or they don't recall being notified.
- 37 percent said they have a higher balance this year than they did last year, which means they are at risk of losing money.
"This, coupled with increased rollovers and the inability for many to seek clinical services during the height of the pandemic, means consumers may be at risk of forfeiting more money than ever to a missed deadline," Rouleau said.
It's important for employers and HR professionals to help staff maximize their FSA investment. Clearly communicate your company's policy and offer information on eligible expenses that employees may be unaware qualify for purchases.
Newly Covered FSA Expenses
The IRS determines the types of products and services eligible for reimbursement with an FSA. In 2020, the CARES Act expanded the covered products and services to include three newly eligible expense categories:
- COVID-19 supplies. From masks to hand sanitizers, home test kits and sanitizing wipes, people can use FSA funds to purchase personal protective equipment. Pulse oximeters, which measure the amount of oxygen in your blood, are also covered in this category.
- Menstrual supplies. FSA funds now cover hygiene products such as pads, tampons and cups.
- Over-the-counter medications. Nonprescription items like allergy medications, cold and flu treatments, and pain killers are once again FSA-eligible. These items were allowable until 2010 when the Affordable Care Act excluded these items, but the CARES Act reinstated their eligibility.
"It can be worthwhile to stock up on over-the-counter medications, bandages and dental care products. These can all be bought with FSA dollars and will easily keep until you're ready to use them," said Ann Martin, director of operations at personal finance website Credit Donkey. "If you're feeling generous, many of these items also make great donations to homeless shelters and other services for the less fortunate."
Surprisingly Eligible FSA Expenditures
FSA-allowable expenses have broadened to include products that accompany modern trends. Here are four that employees may not know about:
- DNA kits and health reports. Ancestry services that include a health report can be covered by FSA funds to help people understand how genetics may impact their health and take preventive actions.
- High-tech health care items. Massagers that relieve stress or pain, such as foot massagers, seat massagers, select light therapies and other health-tech items, can be purchased with FSA balances.
- Skincare products. Nonprescription acne cleansers and treatments, serums, and sunscreens qualify.
- Sole support. Orthopedic shoe inserts can also qualify when used to improve or prevent a medical condition or disease.
Popular FSA-Eligible Purchases
- Dental care. Routine cleanings and X-rays not covered by an insurance plan aren't the only FSA-eligible dental expenses. Fillings, crowns, braces and oral surgeries also qualify—although products like toothpaste, dental floss and mouthwash are not eligible for reimbursement.
- Pregnancy, fertility and family planning products. Pregnancy test kits as well as breast pumps and other lactation accessories are reimbursable through FSA funds. Prenatal vitamins, birthing classes and the cost of fertility treatments are also eligible.
- Vision care. In addition to glasses, sunglasses and contact lenses, FSA funds cover prescription goggles and supplies such as lens cleaners and solutions, eyeglass repair kits, and elective procedures like surgery and Lasik.
Think Outside the Box
"Most people think of co-pays when they think of FSAs, but these tax-advantaged accounts can be used for much more," said Preston Farrington, CEO of Health-E Commerce, parent brand to FSA Store. "What many consumers don't realize is that FSAs can be used to purchase thousands of everyday health care items that you likely already buy throughout the year. Why not buy those with your tax-free health care dollars?"
Katie Navarra is a freelance writer based in New York state.