What to know before the Dec. 31 deadline for flexible spending accounts

If you have a flexible spending account, you could be facing a use-it-or-lose-it deadline to spend down those funds before the end of the year.

Flexible spending accounts, or FSAs, allow workers to set aside pre-tax money to pay for qualified medical or dependent care expenses.

They are not to be confused with health savings accounts, or HSAs, which are paired with high-deductible health plans and don’t come with spending reimbursement deadlines.

About 70% of FSA account holders have a Dec. 31 deadline to spend their funds, according to FSA Store, an online retailer for FSA-eligible products.

For FSA balance holders who still haven’t fully used their funds for 2024, it’s a great time to check with your plan or human resources department to see whether the Dec. 31 deadline applies to you, said Rachel Rouleau, chief compliance officer at FSA Store.

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For some FSAs, a grace period may provide up to two and a half months after the end of the plan year — or until March 15, 2025 — to spend down the funds, Rouleau said. Other plans may instead allow for a carryover of up to $640 from their FSA balance from this year into 2025.

However, it’s important to note that for many other FSA account holders, neither of those options apply, Rouleau said.

If that’s the case, “you really want to make sure you’re tracking to Dec. 31 and spending down your funds appropriately before that date,” Rouleau said.

In 2024, participating employees could put up to $3,200 in a health care FSA account.

Households with FSAs put an average of $2,250 into their accounts annually, according to Numerator, a provider of market research data. That includes $1,820 from personal contributions and $430 from employers.

Most FSA holders use their accounts for dental and vision care, with 67%; as well as prescription medications, 65%; and medical services and procedures, 64%; according to Numerator.

Many plans offer run-out periods, where FSA account holders can submit for reimbursement up to three months after the end of the plan year, according to Rouleau. In that case, whether you submit for reimbursement now or later, the funds still must be spent by Dec. 31.

Many over-the-counter items, such as acne treatments, pain relievers like Tylenol or allergy medicines like Claritin are FSA eligible, Rouleau said.

However, not all health care items or services are necessarily eligible for FSA reimbursement.

Nicole DeRosa, a certified public accountant and director of tax at SKC & Co. CPAs in Boonton Township, New Jersey, said she refers her clients to IRS Publication 502 to check to see whether certain expenses qualify.

Medical expenses that qualify for FSA reimbursement generally also qualify for the medical and dental expenses deduction, according to the IRS.

“There’s a lot of expenses that people might not think are eligible that are eligible,” DeRosa said.

For example, for service dogs, their veterinary, food and grooming expenses are covered, she said. Notably, the same does not apply for emotional support animals.

Generally, weight loss programs and cosmetic procedures are not eligible expenses, unless a doctor prescribes them to help treat a medical condition, DeRosa said.

As the calendar turns to the new year, you don’t have to wait to spend your new FSA balance for 2025.

“You don’t have to wait for each paycheck or to accrue a balance,” DeRosa said. “You can be proactive, and you can start spending it all right away.”