IRS: Eligible employees can use tax-free dollars for medical expenses

With health care open season now
under way at many workplaces, the Internal
Revenue Service today reminded workers they may
be eligible to use tax-free dollars to pay medical
expenses not covered by other health plans.

Eligible employees of companies that offer a health
flexible spending arrangement (FSA) need to act
before their medical plan year begins to take
advantage of an FSA during 2020. Self-employed
individuals are not eligible.

An employee who chooses to participate can
contribute up to $2,750 through payroll deductions
during the 2020 plan year. Amounts contributed
are not subject to federal income tax,
Social Security tax or Medicare tax.
If the plan allows, the employer may also
contribute to an employee's FSA.

Throughout the year, employees can use FSA
funds for qualified medical expenses not
covered by their health plan. These can include
co-pays, deductibles and a variety of medical
products. Also covered are services ranging
from dental and vision care to eyeglasses
and hearing aids. Interested employees
should check with their employer for details
on eligible expenses and claim procedures.

Under the FSA use-or-lose provision, participating
employees normally must incur eligible expenses
by the end of the plan year or forfeit any unspent
amounts. However, employers can, if they choose
to, offer an option for participating employees to
have more time to use FSA money.

  • Under the carryover option, an employee
    can carry over up to $500 of unused funds
    to the following plan year. For example, an
    employee with unspent funds at the end of
    2019 would still have those funds available
    to use in 2020.
  • Under the grace period option, an employee
    has until two and a half months after the end
    of the plan year to incur eligible expenses.
    For example, March 15, 2020, for a plan year
    ending on Dec. 31, 2019.
  • Employers can offer either option (not both)
    or no option.

Employers are not required to offer FSAs.
Interested employees should check with their
employer to see if they offer an FSA.
More information about FSAs can be found at
IRS.gov in
Publication 969, Health Savings Accounts and
Other Tax-Favored Health Plans

IR-2019-184 Tax Tips.


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