By Payroll and Entitlements Editorial Staff
The IRS has reminded workers that they may be eligible to use tax-free dollars to pay medical expenses not covered by other health plans. Accordingly, eligible employees of companies that offer a health flexible spending arrangement (FSA) have been advised to act before their medical plan year begins to take advantage of an FSA during 2020. However, self-employed individuals would not be eligible.
Interested employees may contribute up to $2,750 through payroll deductions during the 2020 plan year. Further, the amounts contributed would not be subject to federal income tax, Social Security tax or Medicare tax. Employers may also contributed to an employee’s FSA, if the plan allows. The FSA funds can be used by employees IRS.gov for qualified medical expenses not covered by their health plan, including services ranging from dental and vision care to eyeglasses and hearing aids. If participating employees do not incur eligible expenses by the end of the plan year, they must forfeit any unspent amounts. Although, employers can choose to offer more time for employees to use FSA money using either of the following options:
- under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year; and
- 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.
Finally, employers are not required to offer FSA. More information about FSAs can be found in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. (IRS News Release, IR-2019-184, November 15, 2019.)
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