Helping Employees Avoid a New Year’s FSA Hangover
It’s that time of year again.
The time when holiday bills and unintentionally bad spending behavior have come due. Whether that means spending too much on a teenager’s video game system, a spouse’s automated vacuum cleaner, or even a holiday party that went on a little later than expected, it results in a different kind of holiday hangover. It doesn’t hurt your stomach as much as the typical hangover, but it can give you a bigger headache.
But there is some good news. Most flexible spending accounts (FSAs) allow for an extension of health care spending into the new year. Whether that is accomplished through a grace period, a carryover or a run-out period, health plan members who have chosen an FSA as their spending account may still be able to purchase that pain reliever (or stomach medication for those who had the party) tax free and with money they already set aside in 2018.
Here are some tips to help your employees avoid a New Year’s hangover:
Keep your employees in the know
Letting employees know that 2018 FSA dollars are still available for use in 2019 is only half the battle. Communicating the particulars of the FSA to your employees helps both of you avoid pain and suffering of confusion related to the account. We recommend keeping the details high-level and easy to skim. Call out what employees need to do and the dates that are important. A bulleted list of important information is best. For example:
- Your FSA allows for the use of 2018 funds in the 2019 plan year
- Submit all payments and reimbursement requests by XYZ date (if you allow a carryover)
- Reduce the funds in your account to XYZ amount (if you allow a rollover)
- Completely spend all funds by XYZ date (if you allow a grace period)
Include the details for those who want them
One way to avoid employee frustration is to make sure they understand why their accounts work the way they do. Help them understand what key terms mean and how IRS regulations come into play. For example, in research Further has conducted, we learned that many members think they have kept the same FSA for many years. Help an employee understand that even if they keep the same health option from one year to the next, they will be switching to a new (separate) account in the next plan year. This means the “use it or lose it” element of an FSA is key. Below are details on the FSA options available to extend funds into the new year.
- Rollover - The amount you can carry over from one plan year to the next. This is determined by the employer (you). The IRS allows up to $500 carried over. You can continue to carry over the allowed amount each year you elect this account.
- Grace period - For a flexible spending account (FSA), this is the amount of time you have after the end of a plan year to spend unused funds. Expenses can be incurred until the end of the grace period. The IRS allows a grace period of up to 2.5 months after the plan year ends. The IRS allows either a grace period or a rollover.
- Runout period - For a flexible spending account (FSA), this is the amount of time you have after the end of the plan year to submit claims for reimbursement. Expenses must be incurred before the end of the plan year.
Provide ideas for spending
Employees who find that they have more left in their accounts than they planned will appreciate ideas you can provide for services and items they can purchase. Make sure they have easy access to an eligibility list. Most employees don’t even realize the numerous options they have for their FSA dollars. Here’s a post that includes some common eligible expenses people often overlook.
Additional ideas for those with grace periods
A grace period operates as a “last call” for your employees to spend from their accounts past the new year. But this feature can trip up employees. Help them sidestep common snafus with the following tips:
- Make sure employees know how to ensure their purchases and payments are drawn from the correct FSA. If your FSA administrator provides debit cards, make sure your employees understand how charges on the card work. Many cards will automatically draw from the current plan year, so during a grace period, employees should NOT use the debit card for charges they want applied to a previous plan year's FSA.
- Provide instructions for submitting payment requests for a previous plan year, either using a form or online tools. Here’s a list of what is needed for different types of reimbursement requests.
- Encourage use of online tools for fastest processing so employees don't get caught by the lag in traditional mail services.
