16 Dec Important info on flexible spending accounts
Q. Simple question: Can I use 2015 health flexible spending account (FSA) dollars to pay legitimate 2014 health bills? Now is the time of year where one signs up for flexible health plans for 2015 but I find it is hard to predict in 2014 what would be needed for 2015.
A. We’re afraid the answer isn’t that simple.
You cannot use funds that were set aside for the 2015 tax year to pay bills from the prior year of 2014 if you have no balance left in your FSA from 2014, said Patricia Daquila, a certified public accountant with Lassus Wherley in New Providence.
“You have 90 days to submit a claim after it is incurred,” she said. “If you went to the doctor in 2014 and you had a bill for $1,000 and you have money in your FSA left from 2014, then you have 90 days to submit that claim and get paid.”
However, she said, if you have no money left in your 2014 FSA, then you cannot pay that bill in 2015 from money that was set aside for 2015. You can only submit expenses incurred in 2015 for the money set aside for 2015 unless you have a balance left from 2014, she said.
What your employer chooses for your plan can give more flexibility to your account.
The employer can choose to amend their FSA plan to allow a $500 carryover of unused amounts remaining at the end of the year to the following tax year, Daquila said.
“This will allow an employee to feel more comfortable in making a FSA election knowing that they will not lose up to $500 at year end if they do not spend it,” she said.
The other election is that an employer can make is to allow an employee to use the remaining balance in their FSA up to 75 days after the end of the calendar year, which is March 15 of the following year. Therefore, an employee has until March 15 to spend their remaining balance from the previous tax year without losing it.
The employer can only elect one of these options, but not both, she said.
On trying to decide how much to set aside in an FSA, in most cases, it is very difficult to predict what medical bills that you will incur in the following year, said Reed Fraasa, a certified financial planner with Highland Financial in Riverdale.
He said in 2015, the salary reduction limit is $2,550 for an FSA. To make your decision, you should consider the following factors, and not extreme or one-time expenses:
• Do you have a vision plan or dental plan? If not, consider an annual checkup or two in the annual cost. If so, what are the deductibles.
• What are the deductibles for your medical plan, or dental plan? Are there co-pays?
• The average annual amount for the last few years should be set aside in your Flex Spending account.
“This process is an estimate,” he said. “You will be over some years and under some years, but the new $250 carryover should help. Better to be a little under that more than $250 over.”
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This story was first posted in December 2014.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.