You only have a few weeks to spend down these tax-advantaged dollars

Are you stocking up on cold and flu meds for the winter? Buying an at-home Covid-19 test kit? If so, you are running out of time to use this tax-advantaged account for those purchases.

Health-care flexible spending accounts, which may be available at your job, allow you to stash pre-tax dollars and tap them free of tax for qualified medical expenses.

In 2020 and 2021, you can save up to $2,750.

Though you can use the money as early as Jan. 1, you generally have until the end of the year to use up your funds — or else you forfeit them.

The IRS gives employers the choice of allowing workers to roll over some money into the following year — up to $550 for 2020 — or offering them up to 2½ months after the plan year ends to spend remaining cash.

Bear in mind: Your employer isn’t required to give you either choice.

Unspent cash goes to the employer, where it can be used to cover plan expenses.

“We know based on consumer industry data, savers forfeit $400 million to $500 million in FSA funds each year,” said Rachel Rouleau, vice president of compliance for Health-E Commerce, the parent company of FSAStore.com.

An extraordinary year

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Since Covid-19 kept so many people at home this year, many employees took a longer time to use their rolled over balances from 2019 — and they were running out of time to use the cash.

Some employers offered their savers flexibility in light of the pandemic, including stopping deferrals to the FSAs, according to Ed Zollars, CPA and partner at Thomas, Zollars & Lynch in Phoenix and an instructor at Kaplan Financial Education.

The IRS issued special relief in May, allowing plan administrators to give workers until the end of 2020 to use up funds that were rolled over from 2019.

The additional flexibility also applies to money in dependent care FSAs. Parents can use these accounts to save up to $5,000 in pretax dollars to cover childcare for kids under age 13.

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Just be aware your employer isn’t required to offer this relief.

Further, there hasn’t been guidance from the IRS on what will happen to leftover funds from the 2020 plan year and whether there will be further opportunities to push the money into 2021.

Savers are facing that conundrum as Covid-19 cases continue to spiral and the year approaches its end. Another round of shutdowns could mean the money goes unused again.

“As we get to the end of December, that’s when the IRS will be expected to address again that there are people stuck with money in 2020 and they couldn’t cut the contributions off early enough,” said Zollars.

Finding eligible expenses

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