‘Tis the Season

Richard Connor

OPEN ENROLLMENT begins in early November for many employees. This is a great time to see if you’re making the most of your workplace benefits, especially flexible spending accounts, or FSAs.

FSAs allow you to deduct pretax dollars from your paycheck for medical, adoption, commuting and dependent-care expenses. There are some new rules for the accounts this year in response to the pandemic.

First, the basics: During open enrollment, you tell your employer how many dollars you want deducted for these accounts over the next year. The contribution limit for a health care FSA is $2,750 in 2021 and $2,850 in 2022. Each spouse in a couple can contribute, for an annual household total of $5,700 in 2022.

Unlike the similar sounding health savings account, money in a health care FSA typically must be spent in the year you save the money or soon thereafter. If you don’t spend the money by the deadline, you can forfeit the unused funds.

That makes the deadline for spending important. The deadline can be year-end, but check with your HR representative to see if your employer offers some flexibility. Typically, employers can either let you roll over up to $550 of unspent funds into next year or, alternatively, give you until mid-March of next year to empty the account. The $550 rises to $570 in 2022.

This year, Washington is offering employers the ability to relax the rules even further, recognizing that many people skipped routine doctor visits during the pandemic. If they choose, employers can allow employees to roll over their entire health care FSA contribution into 2022.

Spending money from a health care FSA is fairly easy, even when you’re up against a deadline. For example, you could run to the drug store to stock up on home COVID-19 testing kits, hand sanitizer and masks—providing they’re in stock. If not, you can go to another aisle and buy over-the-counter drugs, such as pain relievers, cough suppressants and antihistamines. Here’s a full list of eligible medical items.

Meanwhile, a dependent care FSA allows you to save pretax dollars for child care expenses you pay while working, including while working from home. You can also spend the money for the care of qualifying adults, such as adult daycare for a dependent parent.

Normally, you can’t roll over any dependent care FSA money to next year. But as with health care FSAs, there are changes to this year’s dependent care FSA rules. For 2021, employers may provide a 12-month grace period—that is, until Dec. 31, 2022—to empty these accounts. The dependent care contribution limit increased to $10,500 for 2021 only. The limit reverts to the previous annual limit of $5,000 in 2022.

I remember several Decembers when my wife and I sat down and figured out how to spend our remaining FSA dollars. Having an extended grace period can relieve some of the pressure on busy families. Remember, though, that your company must choose to allow the longer grace periods permitted this year. The bottom line: Check with your HR department before you assume you have extra time to spend.

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