Flex Spending Account Grace Period: What You Need to Know

A flex spending account (FSA) grace period is an extra 2.5 months to spend leftover funds after the plan year ends, but you must have a balance of $500 or less to be eligible.

The IRS sets the rules for FSAs, and the grace period is a way to give you time to use up any remaining funds before they expire.

You can only use the grace period funds for qualified medical expenses, just like you would during the regular plan year.

The deadline to use up your FSA funds is typically March 15th of the following year, but the grace period can extend that deadline to May 31st.

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A flex spending account, or FSA, is a type of savings account that allows you to set aside a portion of your income for medical or dependent care expenses on a tax-free basis.

You can use an FSA to pay for eligible expenses such as medical bills, copays, and prescription medications.

A medical FSA or dependent care FSA can be offered with a grace period, which gives participants additional time to incur FSA-eligible expenses beyond the plan year end date.

You can't offer both a carryover and a grace period, they are mutually exclusive options.

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FSA funds can be used to reimburse eligible medical expenses, and any leftover funds from the prior year can be used during the grace period.

The FSA plan year is normally 12 months, but the inclusion of the grace period extends it to 14 months and 15 days.

For calendar year plans, the grace period begins on January 1 and ends on March 15.

Claims submitted during the grace period are automatically taken out of the prior year's remaining funds before drawing from the current plan year.

If you use your FSA debit card to pay for expenses during the grace period, the prior year's remaining funds will be available on the card until the end of the period.

You will lose all of the money in the account at the end of the grace period.

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Changes to FSA grace periods were introduced in 2021, allowing employers to extend the deadline for using FSA funds until December 2022.

The Consolidated Appropriations Act, 2021, made this change possible, giving employers more flexibility in managing FSA funds.

For plan years ending on December 31, 2022, the extended grace period allows for reimbursement of unused funds until March 15, 2023.

If you have $150 left in your FSA at the end of the plan year, you can use it to reimburse eligible medical expenses during the extended grace period.

Here's an example of how it works: if you incur $400 in eligible medical expenses on February 5, 2023, the remaining $150 from the 2022 plan will be used first, followed by $250 from the 2023 plan.

The extended grace period is a one-time exception, and for plan years starting in 2023, the standard 2.5-month grace period will apply.

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The FSA grace period is a provision that allows you to spend any remaining money in your flexible spending account (FSA) on medical expenses, even after the end of your plan year. This period can last up to 2.5 months, until March 15.

The grace period extends the plan year to 14 months and 15 days, giving you extra time to incur eligible expenses. For calendar year plans, the grace period normally begins January 1 and ends March 15.

Claims submitted during the grace period are automatically taken out of the prior year's remaining funds before drawing from the current plan year. If you use your FSA debit card, any leftover funds from the previous year will be used first, then the card will use funds from the current year.

Here are some key facts about FSA grace periods:

It's essential to check with your employer to see if your FSA has a grace period and what the deadline is to spend the money in your account. If not, you'll lose this money at the end of the grace period.

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Employers can choose between a grace period or a carryover provision for FSAs, but not both.

A carryover provision allows you to carry over a certain sum for the next plan year without a time limit on when you have to use it. This amount is $570 in 2022, rising to $610 in 2023.

The maximum annual contribution limit remains $2,850 in 2022, rising to $3,050 in 2023.

You have until March 15 of the following year to incur eligible expenses, but can submit claims for reimbursement up until March 31.

This 16-day window is known as the run-out period, during which you can still submit claims for reimbursement.

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If you're wondering how long you have to spend 2021 FSA money, it's essential to check with your employer. You might have until Dec. 31, 2022, to spend FSA money earmarked for 2021, but this is an exception.

The IRS allows employers to permit a grace period of up to 2 ½ months, which can extend the plan year to 14 months and 15 days. For calendar year plans, the grace period normally begins Jan. 1 and ends March 15.

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If your FSA plan year ended Dec. 31, 2022, and your employer offers a plan with a grace period, you have until March 15, 2023, to incur eligible expenses using last year's funds.

Here's a summary of the deadlines to keep in mind:

Remember to check with your employer for specific details on your FSA plan and deadlines.

The employer has a big role to play in determining the length of the grace period for FSA contributions. They can decide how long this period will last, as long as it's within the IRS' 2 ½-month limit.

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Funds remaining in the FSA from the prior plan year can reimburse any eligible medical expenses accrued during the 2.5-month grace period.

The inclusion of the grace period extends the plan year to 14 months and 15 days, giving you extra time to use up your remaining funds.

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Claims submitted during the grace period are automatically taken out of the prior year's remaining funds before drawing from the current plan year.

If you use your FSA debit card to pay for expenses, the prior year's remaining funds will be available on the card through the end of the grace period.

When you swipe your card, any leftover funds from the previous year will be used first, then the card will use funds from the current year.

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FSAs offer a range of benefits that make them an attractive option for employees.

The use-or-lose rule can be a major drawback for participants, as they forfeit their unused FSA funds at the end of the plan year.

Providing a carryover or grace period can give participants peace of mind, either by allowing them to carry over funds or giving them more time to spend them.

This added flexibility can encourage participants to contribute to their FSA year after year, ultimately saving more money for themselves and their employers.

By giving participants more control over their FSA funds, employers can boost participation rates and reduce administrative costs associated with unused funds.

The FSA grace period is a 2.5-month extension of the plan year, adding 14 months and 15 days to the 12-month actual plan. This period is crucial for using up remaining funds before they're lost.

For calendar year plans, the grace period typically begins January 1 and ends March 15. You can use the remaining funds from the prior year during this time to reimburse eligible medical expenses.

Claims submitted during the grace period are automatically taken out of the prior year's remaining funds before drawing from the current plan year. This ensures that you use up the available funds from the previous year before tapping into the current year's funds.

If you use your FSA debit card to pay for expenses, the prior year's remaining funds will be available on the debit card through the end of the grace period. The card will use funds from the previous year first, then move on to the current year's funds.

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