Plan Now To Use Health Flexible Spending Arrangements In 2019

Planning for Health Flexible Spending Arrangements (FSAs)

The Internal Revenue Service has issued a reminder to eligible employees to start planning for their employer's health flexible spending arrangement (FSA) for 2019. This will enable them to take full advantage of the benefits offered by the program. It is recommended to start planning ahead of time to avoid any last-minute rush and make the best use of the FSA.

Understanding FSAs for Tax-Free Medical Expenses

FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers are offering their employees the option to sign up for an FSA this fall for participation that begins in 2019.

Interested employees wishing to contribute during the new year must make this choice again for 2019, even if they contributed in 2018. Self-employed individuals are not eligible.

Enrollment Options and Contribution Limits

for FSAs

During the 2019 plan year, an employee has the option to participate and contribute up to $2,700, which is $50 more than the previous year. It's worth noting that the amounts contributed are exempt from federal income tax, Social Security tax, and Medicare tax. Additionally, if the employer permits, they may choose to contribute to an employee's FSA.

Utilizing Funds for Qualified Medical Expenses

Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles, and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.

Managing Unspent Funds: Use-or-Lose Provision Options

Under the use-or-lose provision, participating employees often must incur eligible expenses by the end of the plan year or forfeit any unspent amounts. But under a special rule, employers may, if they choose, offer participating employees more time through either the carryover option or the grace period option.

Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year — for example, an employee with $500 of unspent funds at the end of 2019 would still have those funds available to use in 2020. Under the grace period option, an employee has until two and a half months after the end of the plan year to incur eligible expenses — for example, March 15, 2020, for a plan year ending on Dec. 31, 2019. Employers can offer either option, but not both, or none at all.

Employer Participation and FSA Offerings

Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA. More information about FSAs can be found in Publication 969 , Health Savings Accounts and Other Tax-Favored Health Plans, available on IRS.gov.