Though flexible spending account funds typically need to be spent by Dec. 31, many workers have an additional 12 months to use their 2021 contributions to cover qualifying medical expenses.
Medical FSAs, also known as health-care FSAs, allow workers to stash away pre-tax money for qualifying expenses that insurance doesn't cover. Under normal circumstances, if an account holder doesn't use up all of the money in their account by the end of the year (typically the end of the calendar year), they can roll over up to $550 to the next year, or spend it during a two-and-a-half-month grace period, depending on their employer.
That leads many people to spend down their accounts in the final weeks of each year so they don't lose out. Still, workers forfeit an estimated $400 million a year, according to FSAStore.com, which sells qualifying health products.
But Congress changed the rules for 2020 and 2021 during the Covid-19 pandemic because many households weren't using up their FSA dollars due to canceled or delayed medical appointments.
Now, employees may be able to carry over all of their unused health funds from 2021 into 2022 if their workplace opted into the changes, according to the IRS (this is also true for dependent care FSAs). The maximum the IRS let workers contributed this year was $2,750, but employers may have lower contribution limits.
Health-care FSAs can be used for a variety of medical expenses, ranging from prescriptions to co-insurance payments to deductibles. Also currently, workers can use FSA funds to pay for over-the-counter medications without a prescription, like Tylenol and other pain relievers, and feminine care products for the first time. Expenses you might not expect, like sunscreen, are also eligible.
That said, you should also ensure that you've spent all of your 2020 FSA dollars, as the extension deadline for using those is likely Dec. 31, 2021 (plan years can vary depending on the employer).
It is worth taking into account how much FSA money you can roll over during open enrollment this year, as that might affect your contributions for 2022. If you roll over the full $2,750, for example, you may not contribute as much next year.
If you're unsure of whether or not your 2020 and 2021 contributions rolled over, you can check with your benefits department.
Workers can use a site like FSA Store or HealthProductsForYou to search for FSA-eligible necessities, and drugstores like CVS typically note when a product is FSA or HSA-eligible. Amazon also has an FSA section.