The Internal Revenue Service today reminded eligible employees
that now is the time to begin planning to take full advantage of their
employer’s health flexible spending arrangement (FSA) during 2018.
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 this fall are offering their employees the
option to participate during the 2018 plan year.
Interested employees wishing to contribute during the new year
must make this choice again for 2018, even if they contributed in 2017.
Self-employed individuals are not eligible.
An employee who chooses to participate can contribute up to $2,650
during the 2018 plan year. That’s a $50 increase over 2017. Amounts contributed
are not subject to federal income tax, Social Security tax or Medicare tax. If
the plan allows, the employer may also contribute to an employee’s FSA.
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.
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 2018 would still have those funds available to
use in 2019. 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, 2019, for a plan year ending on Dec. 31, 2018. Employers can
offer either option, but not both, or none at all.
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, available on IRS.gov.
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