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The end of the year is 6 days away.
That means just 6 more days to spend your FSA. Less if you plan to shop online. Most retailers and shipping services will be closed on the 31st. And most online retailers will not charge your card until your order ships. That means if you place an order at 11:59 pm on 12/31, your card may not be charged until 1/02 and that means lost money.
If you’ve got some money left in your account, but you’re not really sure what to spend it on, maybe you’re wondering what happens to your unused FSA dollars when the clock strikes midnight. Remember that while HSAs continue to build year over year, FSA is a use it or lose it based account.
So, do you just lose your FSA dollars? Do they go back to your employer? Or does the government take it? To really weigh out the pros and cons of letting your FSA money just expire, we wanted to make sure you knew everything about the end of the year FSA spending.
Do you know if you have a rollover?
Before we start talking about where the land of misfit FSA dollars is, you may have an option to keep your money in the new year.
There are some rollover options available that some employers might offer. Those two options are a 3-month extension or up to $500 to carry into 2019. Not every employer is required to offer a rollover option and your employer can only offer one option.
But more likely than not, your FSA will expire on 12/31. That means anything that’s left in your FSA will *POOF* disappear. And if you did not opt-in to a Flexible Spending Account in 2019, then your FSA card will no longer work and your tax savings will disappear too. Every Open Enrollment Period, you must opt-in again. You are not automatically enrolled each year.
If you lose some funds, it’s not the end of the world
That’s right. In fact, you don’t actually need to spend every dollar in your account to reap the tax savings. If you’re in the 22% tax bracket, and you opt to contribute $700 to your FSA, you’ll still save money if you spend at least $450! So unused FSA dollars are not as bad as it seems.
How does that work?
If you’re in the 22% tax bracket and contribute $700 to your Flexible Spending Account, your estimated income tax savings will be roughly $271. So if you spend $450, you’re still saving $21 that would you’ve paid in taxes! Get it? Basically, you’re losing the pre-tax dollars you saved, but you would’ve paid that amount and more in income taxes. Plus, think of all the items you can buy with your FSA that is tax exempt, or at a discounted price because it’s FSA eligible. That’s even extra savings when you think about it!
Check out this helpful calculator over at Cigna to estimate how much you'll save.
So where do unused FSA dollars go?
Well, if you don’t spend all your FSA dollars, they do go back to your employer.
But not in the way you may be thinking.
Your employer has 2 options for using the unspent FSA dollars. They can use it to pay for hosting the FSA/HSA program. If they don't choose that option, they can disperse those funds evenly among employees that were enrolled. Your employer can’t directly give those lost funds back to you, nor can they just keep it for themselves.
So yes, your employer gets your unused FSA dollars. But, that doesn’t mean they get to go on vacation with it! Your employer is only allowed to disperse it among FSA enrolled employees, or to help offset the cost of administering the program.
And if you have unused dollars at the end of the year, don’t fret! Remember to check with your HR representative if you have a rollover! If you don’t, double check what you’re saving in income taxes. The dollars you lose may still be less than the great tax benefit of an FSA.
Remember, there are only 6 more days to spend down your Flexible Spending Account. Make sure you're maximizing your tax savings, and spend every last dime in your account!