Because the healthcare marketplace is open once again, the Internal Revenue Service reminded those who are eligible to take advantage of their employer’s health flexible arrangement (FSA). The program, which provides employees a way a use tax-free dollars to pay for medical expenses not covered by other health plans, is being opened up by many employers for their employees to participate during the 2016 plan year.
How it works
Each employee contributes to the FSA by having money taken from their checks and put towards the plan. IRS officials are reminding people to take advantage of what they pay into the plan and employers are reminding their employees that they should enroll in the plan to take full advantage of the ability to have additional medical bills paid for.
Interested employees must make the choice to contribute to the plan again for 2016, even if they contributed in 2015. Self-employed individuals, freelancers and others who work like careers are not eligible. Anyone who decides to participate in the plan during 2016 can contribute up to $2,550. Anything that is contributed is not subject to federal income tax, Social Security or Medicare tax. If the employer’s plan allows, the employer may also contribute to an individual employee’s FSA.
During the year in which the employee pays into the program, they can use the money to pay for medical expenses that are not covered by their current health care plan. This includes things like co-pays, deductibles, dental, vision and even the purchase of certain products like hearing aids.
In addition to co-pays and the other aforementioned services, FSA funds can also be used to pay for medications that are prescribed by a doctor. The funds may also be used for things like crutches, bandage and diagnostic devices (like blood sugar tests).
If an employee has a question about whether or not something is covered by their FSA, they should check with their employer to see whether the purchase or procedure will be covered.
Use it or lose it
Anyone who pays into the employer’s FSA throughout the year must use what they pay into it before the year’s end or the unspent amounts will be forfeited. However, through a special rule, employers are allowed to offer participating employees additional time to claim the unused amounts through a carryover option or grace period.
The carryover option allows an employee to carry up to $500 over from the unused amounts of the previous year. For example, if an employee had $500 of unspent funds at the end of the year, they would still have those funds at the beginning of 2016. A grace period allows the employee two and a half months after the end of the year to take advantage of their FSA. For example, if a plan ended on December 31, they would be able to use the funds in their plan up until March 15 of the following year.
You do not have to pay taxes on the money you set aside for the out-of-pocket medical expenses, so you save quite a bit of money by opting to contribute to an FSA. Ask your employer about whether there is an FSA program at your place of employment and what the deadlines are for signing up for next year’s coverage.