5 tips to help employees with FSA spend down

Medical flexible spending accounts (medical FSAs) are use-or-lose accounts. There are limits as to whether (or how much of) your employees’ FSA funds can be carried over into the next plan year. 

How well do your employees understand their FSA’s plan rules? If they don’t, they could risk forfeiting funds to the plan. And any forfeiture of funds would create a negative experience for them that may discourage future FSA participation, hurting their ability — and your ability — to save money. Fortunately, you can help. 

Add a carryover or grace period

You can give your employees even more flexibility to spend their FSA dollars by adding a carryover or a grace period in future plan years. 

• What is a carryover? A carryover lets your employees carry FSA funds ($640 from their 2024 FSA, indexed annually per IRS rules) from one plan year to the next. You determine the amount of the carryover, up to the max IRS amount allowed.
• What is a grace period? A grace period gives your employees additional time (up to 2 ½ months) past the plan end date to incur expenses. You determine the length of the grace period up to the max time frame allowed by the IRS. 

Offering a carryover or grace period will help FSA participants avoid pushing the boundaries of what’s actually covered by their FSA when spending down their funds.

Please note: IRS rules don’t allow you to offer both a carryover and a grace period in the same plan. 

Remind them of your plan rules

More than a year passes between the time your employees choose to participate in a medical FSA and the end of that FSA’s plan year. Communicating your FSA’s rules during open enrollment is important, but reminders are important too. Be sure your employees know the answers to questions like: 

• Does my medical FSA have a carryover?
• If there is a carryover, how much is it? See above for the carryover limits.
• Does my medical FSA have a grace period? 

Provide info on eligible expenses

Your employees may have determined their FSA participation amount based on expected expenses. But, it’s possible that they over-estimated and didn’t incur the eligible expenses that they were anticipating prior to the plan year. 

Fortunately, there are some pretty common household expenses that are eligible for FSA funds, such as pill boxes, nasal sprays, and eye drops. And the CARES Act, which was signed into law in 2020, made popular over-the-counter drugs and medicines eligible for FSA funds without a prescription. 

You can remind your employees that they can determine whether an expense is eligible for their FSA dollars by using their mobile app. The eligible expense scanner lets them scan the bar code of an item to see if it’s FSA eligible. 

Shop at FSA Store

Your employees can also shop confidently for FSA-eligible purchases at merchants that sell only FSA-eligible products. For example, FSA Store lets them shop among hundreds of eligible expenses. And their purchases are shipped right to their door. Encourage them to check out FSA Store if they have excess FSA funds. 

Share steps on filing a claim

On the other hand, your employees might not be looking for additional expenses to purchase. They may simply need a reminder on how to file a claim so that they can be reimbursed with their FSA funds. Administering your own FSA can be time-consuming, so many employers turn to third-party administrators (TPAs). If you work with a TPA, your TPA should have systems and processes in place to make claim filing easy.

We’ve proven to be industry leaders in simplifying the claim process. Our WEX benefits card automatically approves any FSA purchases of eligible expenses when used at merchants with an Inventory Information Approval System (IIAS). When your employees do need to substantiate a claim, it’s easy for them to upload documentation and check the status of a claim with their mobile app or online account. Here’s how to file a claim using the WEX benefits mobile app. 

Subscribe to our blog so you’ll get benefits tips sent right to your email inbox! Simply submit your email address in the form towards the bottom of the page. And watch our video below to learn more about the basics of a medical FSA. 

The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own legal counsel, tax and investment advisers. 

WEX receives compensation from some of the merchants identified in its blog posts. By linking to these products, WEX is not endorsing these products.