Eligible employees can use tax-free dollars for medical expenses

With health care open season now underway at many workplaces, the Internal Revenue Service reminds 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 can contribute up to $2750 through payroll deductions during the 2020 plan year. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax.

Employees can use FSA funds for qualified medical expenses not covered by their health plan.
These can include copays, deductibles and a variety of medical products,
Covered also are services ranging from dental and vision care to eyeglasses and hearing aids.

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 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.

Under the grace period option, an employee has two and a half months after the end of the plan year to incur eligible expenses.

Employers are not required to offer FSAs.