Time to Adjust Your FSA for 2020?
As always, the following is a discussion on financial topics, but is not financial advice! We share our approach, but insist you need to do your own homework & speak with your own financial advisor!
The CARES Act retroactively enabled additional expenses to qualify for Flexible Spending Arrangements (FSA)-reimbursement. Before, you needed a doctor’s prescription for over-the-counter medications to qualify, but now you don’t!
Why does this matter? Because this could save you lots of money!
Think about how much “room” you could get back on your budget! With the passing of CARES, employers were enabled to re-open the “season” for FSA enrollment. However, this is dependent upon your employer actually doing this. Contact your Human Resources personnel to see if you can take advantage of this window. Essentially, COVID-19 has been a “life event” for all of us, and re-opened the enrollment window, so we could make adjustments, accordingly.
If your FSA enrollment window is open, do some homework ASAP to figure out your tax savings. FSA and related programs (HSA, HFSA) are programs that set aside pre-tax dollars to spend on health care, dependent care, and other similar expenses. Depending on your tax bracket, that could be 10%, 12%, or 22% off (or more!) of your medical expenses! Talk about stretching your dollars! SCORE!
But this news gets better yet. The “retroactively” part of the CARES Act applies to all expenses in 2020. And even better yet, the list of expenses is expanded. It now even includes feminine products!
If this sounds like something you should be taking advantage of, you absolutely should!!
Do you have loyalty program cards for where you shop? Have you purchased things on Amazon? We went back and checked our digital carts for anything that qualified on the list of expenses. Did you buy pain meds or cold meds in January? See if you can track down a receipt to submit. We have been doing grocery pick-ups with Baker’s (a Kroger’s store), and with their loyalty program, and digital carts, we were able to submit receipts for everything.
To date, doing this has saved us an estimated $390.
But we’re only just getting started with this money-hunting plan.
Once you have claimed everything you can for this year, thus far, go check out your medicine cabinet and deep pantry. With COVID-19 spiking in a lot of places again, and cold and flu season still remaining yet on the calendar, make a list of what you need to be planning to purchase yet for the year to keep your personal stash stocked.
Now go purchase it. Don’t wait. Remember, we should all be preppers, right? Then you have another receipt to submit! If you don’t have the room in your budget today, make a plan. A very specific one.
Our very specific plan, since I don’t yet know the exact cost of another pair of glasses, means our estimated tax savings this year will probably be at least $600 from maximizing our FSA. Pretty wonderful chunk of ‘change,’ right?!
If you need to adjust your FSA allotment, now you know how much to increase it to! For 2020, an employee can contribute $2,750 into their health-care FSA. It’s a very good idea to double-check the list of approved reimbursable expenses to see what does and doesn’t qualify. It’s also a good idea to double-check your plan with your accountant or financial advisor!
The last bonus of this FSA good news story? You can rollover $550 of pre-tax $$$ in your FSA for next year’s medical expenses! That’s up $50 from years past. So, if you’ve figured out all of your expenses, you can then tack on an extra $550 (up to the capped total amount of $2,750 for the FSA) if you suspect you’ll use it next year for medical expenses. Doing this reduces your otherwise taxable income!
Today is probably a great day to adjust your FSA allotment for 2020!
The word of caution is two-fold here: raising your FSA allotment reduces your paychecks by the required amount to fund your FSA, so don’t be surprised by this when budgeting for your next paycheck!
The other, probably more impactful point, is that this is a use-or-lose program. If you do not spend the amount you’ve designated for your FSA account, you lose whatever the difference is that exceeds $550. So if you have $800 in your FSA account at year’s end, you’re going to lose $250. Hardly a good idea! That’s why we did the work of figuring out what we had already spent, and would need for the rest of the year, before tacking on $550 more during the “open season” window. You don’t want to over-do it with this. You could make a run to the store to ‘stock up’ on medications in December to use up that difference, but who can say if there will be any meds on the shelf by then with the way 2020 has been going? This might sound extreme, but why risk it? We aren’t! We can’t help but notice how sparse shelves are these days compared to last year.
Lastly, don’t forget to do this health expenses planning drill again during your annual benefits open season period this fall. Think ahead for next year, plan out what you know you’ll need to cover, and consider adding the extra $550 to the end of that, for 2022’s health expenses.
Again, since we’re talking hundreds of dollars here, if not a couple thousand, this is worth calling up your accountant or financial advisor to double-check your plan!
We hope you find all those health-expense receipts so you can file all eligible claims ASAP! Happy hunting!
