Back in 2005, the Treasury Department changed the rules to allow employers to give workers until March 15 to spend their FSA money from the previous year. The idea was to avoid problems with workers not being able to get medical appointments in December, immediately before the old deadline. While employers aren’t required to extend the cutoff date for FSA expenses, many have. If you work for an employer that has an extended cutoff date for using your FSA, it’s important to know what expenses qualify for it.
Money is tight and you don’t want to forget about the money you stashed away in your Healthcare and Dependent Care FSA. It is important to spend your FSA money before it goes away. It is estimated that more than 39 million people have money remaining in their flex spending accounts after December 31. According to Mercer Global, workers wasted between $150 million to $200 million of unspent FSA money in 2010. The question is not only how to spend it, but how to spend it legally.
The money in the Flexible Spending Account cannot be used for anything other than medical expenses. Talking with a tax professional can help you to determine what exactly is allowable under the law. Generally speaking, medical expenses include the costs of diagnosis, treatment, cure or prevention of disease. You cannot include the expense of items that offer health benefits such as vitamins or vacations. However, you might be surprised by what is actually allowable by the IRS as a legitimate medical expense. Some examples include:
- Special Education. If a doctor recommends tutoring by a specially trained teacher to work with a child who has learning disabilities caused by a mental or physical impairment, this is a medical expense.
- Weight Loss. Fees you pay for a membership to a weight reduction group can be included if it is for a specific disease such as hypertension or obesity. This includes fees you pay to join the group and also the fees for periodic attendance at the group. You cannot include membership dues to a gym, a spa or a health club but if the gym charges separate fees for weight loss activities, you can include that.
- Stop Smoking Programs. You can include the amount you pay for the program to stop smoking. You cannot include non-prescription drugs such as nicotine patches or nicotine gum.
- Eyeglasses and Contact Lenses. The amount you pay for the eye exam, and for eyeglasses or contact lenses that are for medical, not cosmetic, reasons can be included in your medical expenses.
- Chiropractic. You can include the fees you pay to a chiropractor for medical treatment.
- Acupuncture. You can include fees paid for acupuncture services in your medical expenses.
- Dental Treatment. Fees paid for the prevention and alleviation of dental diseases can be included in your medical expenses. This does not include teeth whitening.
- Physical Exam. You don't have to be sick to see the doctor. The amount paid for an annual physical exam can be included in medical expenses.
- Qualified Long-Term Care Insurance Contracts. There are a number of qualifiers to be able to include this in your medical expenses. Seek the advice of a tax professional such as eSmart Tax or Liberty Tax Service to get specific information.
Before using the money in your Flexible Spending Account, it is important to make sure that the item can be included as a medical expense. Talking to your tax professional is the safest way to make sure you are using the money appropriately as allowed by the IRS.