IRS change to FSA rules significantly decreases carryover amount; here's what you need to know
RALEIGH, N.C. -- New changes to an IRS flexible spending account rule will have an impact if you take advantage of the plan.
Because of the recent CARES Act that allowed individuals to carry over unused funds year-to-year for their benefit, the IRS is now capping the amount for someone to carry over to $570.
"Planning is important whenever you decide how much you're going to donate or contribute to your FSA during the year," said Raleigh-based CPA H. Lee Miller. "I think it's important to work with your plan administrator again to see what's covered. It's better to know ahead of time and after that, they're not going to reimburse it."
In 2022, individuals were able to set aside a maximum of $2,850 to their FSA. In 2023, that number will increase to $3,050 and the carryover amount will jump to $610.
"If you do donate $2,850 apiece and you only use $2,000 And there's no carryover, you're gonna lose that money," said Miller when referring to the Dec. 31 deadline of this year to use the remaining funds. "The biggest thing that people can do right now is contact your FSA administrator and ask do you offer a carryover, do you offer an extended deadline to March 15? Even more so than most, most FSA administrators do that because they don't want to get crushed at the end of the year with requests for reimbursement."
Those reimbursements can vary depending on the plan administrator from headache medicine to cessation treatment or devices to massagers and in some cases, gym memberships.
"The only thing that you may want to know about is the fact that your FSA plan administrator at the end of the day governs what you can get reimbursed for and what you can't," said Miller.
FSA contributions are pre-tax dollars that individuals can take advantage of during tax preparation season to reduce their taxable income by the amount they set aside for contribution.
Miller added, "It's a way for people to guarantee savings of $850 a year."
According to FSAStore.com, the top 10 FSA purchases for 2022 are:
- Aura Revive Deep Muscle and Joint Pain Relief Device
- 23andMe Health Service
- Aura Full Body Analysis Scale
- Elvie Double Electric Breast Pump
- dpl IIa Professional Acne Light Treatment Therapy
- Supergoop! Unseen Sunscreen, SPF 40
- Calming Heat Massaging Weighted Heating Pad
- Zyrtec Adult Allergy Relief
- Chirp Wheel+ 3-Pack
- dpl Oral Care Light Therapy System
"It's something to look at definitely something to take advantage of ... even if you use partial," said Miller.
