Reminder to Employees: Plan Now for 2017
The Internal Revenue Service today reminded eligible employees that now is the time to begin planning to take full advantage of their employer’s health flexible spending arrangement (FSA) during 2017.
FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers this fall are offering their employees the option to participate during the 2017 plan year.
Annual Enrollment Requirements
Interested employees wishing to contribute during the new year must make this choice again for 2017, even if they contributed in 2016. Self-employed individuals are not eligible.
Contribution Limits
- An employee who chooses to participate can contribute up to $2,600 during the 2017 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.
Eligible Medical Expenses
Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including:
- Co-pays
- Deductibles
- A variety of medical products and 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.
Use or Lose Provision & Special Rules
Under the use or lose provision, participating employees often must incur eligible expenses by the end of the plan year, or forfeit any unspent amounts.
However, under a special rule, employers may, if they choose, offer participating employees more time through either:
1. The Carryover Option
- An employee can carry over up to $500 of unused funds to the following plan year.
- Example: An employee with $500 of unspent funds at the end of 2017 would still have those funds available to use in 2018.
2. The Grace Period Option
- An employee has until 2½ months after the end of the plan year to incur eligible expenses.
- Example: March 15, 2018, for a plan year ending on December 31, 2017.
Employers can offer either option, but not both, or none at all.
Employer Participation is Voluntary
Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA.
Additional Resources
More information about FSAs can be found in Publication 969, available on IRS.gov.
Frequently Asked Questions
What is a health flexible spending arrangement (FSA)?
A health FSA is a special account offered by some employers that allows employees to use pre-tax dollars to pay for qualified out-of-pocket medical expenses not covered by their regular health plan, such as co-pays, deductibles, dental, vision care, eyeglasses, and hearing aids.
Who is eligible to contribute to an FSA?
Only employees whose employers offer an FSA are eligible to contribute. Self-employed individuals are not eligible. Employees must make an election each year to participate, even if they contributed the previous year.
What is the contribution limit for FSAs in 2017?
For the 2017 plan year, employees can contribute up to $2,600 to their FSA through payroll deductions. These contributions are not subject to federal income, Social Security, or Medicare taxes.
What happens to unused FSA funds at the end of the year?
Generally, unused funds are forfeited under the “use or lose” rule. However, employers may offer one of two options: a carryover of up to $500 into the next year, or a grace period of 2½ months to incur eligible expenses. Employers can offer one of these options, or none.
Are employers required to offer FSAs?
No, participation is voluntary for employers. Employees interested in enrolling should check with their employer to see if an FSA is available and to learn the specific plan rules.