The Smart About Money website will be retiring on July 31, 2021. Learn more about this decision.


How to Spend Your FSA Balance

eye doctor fitting eye glasses on patient

Spending becomes second nature to many of us this time of year. But for those rushing to consume leftovers in a use-or-lose health flexible spending account, we’ve unwrapped some creative ways to burn your balance.

Which medical expenses qualify for my health flexible spending account?

A health FSA covers medical-related expenses that your health insurance doesn’t — such as copays accumulated throughout the year. But in order to make a tax-free withdrawal from your account, you must use the funds for qualified medical expenses. Generally, the medical and dental expenses that qualify for tax deductions also qualify for reimbursement through your FSA.

If you haven’t kept up with how the Affordable Care Act and changes made by the IRS have sweetened your options for spending FSA leftovers, check out IRS Publication 502. The following section covers some of these, but it’s best to also check the specifics of your plan before you spend.

What are some commonly overlooked ways to spend my FSA balance?

Often, flexible spending account holders rush to book doctor and dentist visits not covered by health insurance to avoid wasting an FSA balance. But during the holiday bustle, squeezing in a last-minute appointment might not agree with your schedule (or your doc’s). If time is an expenditure you can’t spare, explore some of these quick and easy options for spending:

  • Acupuncture: Consider the alternative (medicine) route to getting healthier. Generally, acupuncture counts as a medical expense when recommended as treatment by your physician. Learn more on how acupuncture — a form of traditional Chinese medicine — alleviates pain and improves health using a whole-body approach to bring the body’s energy back into balance.
  • Eyeglasses and contact lenses: Doctor up your look with a new pair of glasses or contact lenses if your optometrist suggests. Not only do these count as qualified medical expenses, so do the items required for using your contacts, such as saline solution and enzyme cleaner. Of course, eye surgery to correct defective vision such as LASIK also qualifies. But that requires very thoughtful planning, and isn’t something you want to rush into for the sake of saving some cash.
  • Teeth cleaning: Get your teeth cleaned if you can’t fit in a full dental exam. Treatments to prevent dental disease qualify just as much as those to alleviate it — even when administered by a dental hygienist. This also includes procedures to ward off tooth decay such as the application of sealants and fluoride treatments.
  • Over-the-counter drugs: Stock up on over-the-counter medication that your doctor has prescribed. Drugs otherwise available without a prescription qualify for FSA spending as long as you have that little, doctor-autographed slip of paper. For the latest info, consult the IRS Q&A on OTCs and changes made regarding the Affordable Care Act. You may also build your bank of prescription meds if your physician allows (and will prescribe a larger amount of drugs).
  • Transportation: Calculate out-of-pocket transportation expenses you incurred while using your car primarily for medical reasons. These may include gas, oil, parking fees, and tolls, as well as the cost of an ambulance or bus, taxi, train and airplane fares.
  • Weight loss: Burn pounds and FSA money through a weight-loss program. If you have a physician-diagnosed disease that can be treated with weight loss (such as obesity, hypertension or heart disease), you may include as a medical expense membership fees for a weight-reduction group or meeting dues. Gym membership fees don’t count unless you incur additional expenses at your health club or spa for weight-loss activities.
  • Smoking cessation: Quit smoking and save on more than the weekly expense of lighting up. Smoking-cessation programs qualify for FSA spending; nonprescription drugs, nicotine gum and patches, however, do not.

Which medical expenses DON’T qualify for an FSA?

Your flexible spending account will not pay out for money spent on health insurance premiums, long-term coverage or expenses already covered by another health plan. For an extensive list of expenses you may not include, consult the IRS resource on medical expense deductions. It covers things such as:

  • Nonprescription drugs and medicine (except for insulin).
  • Medical marijuana, even in states where MMJ is legal.
  • Nutritional supplements. This includes herbal supplements and “natural medicines,” unless you have a physician-diagnosed medical condition.
  • Gym memberships and health club dues.
  • Classes to improve general health such as dancing or swimming lessons, even if recommended by a doctor. Only weight-loss programs as treatment for a disease diagnosed by your doctor qualify.
  • Cosmetic surgery, electrolysis, hair removal, hair transplants and teeth whitening.
  • Maternity clothes. However, lactation aids such as breast pumps do count as qualified medical expenses.
  • Diapers or diaper services, unless necessary for alleviating the effects of a particular disease.

Of course, there are exceptions to the rules. Consult your plan for specifics.

Is there a grace period for my FSA?

That depends on whether your employer opted for a plan with a grace period or the option to roll over leftover funds. Grace periods can extend your time to spend by up to two and a half months beyond the plan year. However, this nixes your ability to carry over (or possibly be reimbursed for a portion of) a remaining balance.

Can I roll over my FSA balance to the next year?

You might be eligible for a partial reimbursement or balance rollover if you have a carryover plan. Again, that depends on whether your employer opted for a carryover FSA instead of one with a grace period. As of 2018, IRS rules may allow you to carry over (or be reimbursed for) up to $500 of unused funds to the following plan year. Check your plan for specifics as carryover amounts vary. The annual contribution maximum for FSA is currently $2,650.

How can I prevent the year-end FSA scramble to spend?

According to CPA Jules Hunter, planning is everything. He says it’s the one important thing people don’t always consider. “You don’t want to lose [the balance] because you get taxed on what you don’t spend, and you don’t get it back. At the same time, you don’t want to be scrambling around trying to spend it at the last minute or end up spending it all halfway through the year,” Hunter adds.

When it comes time to designate how much you want to contribute to your health FSA, factor in your medical expenses from years past and any new treatments or procedures you might undergo in the year ahead. Some choose to enroll the maximum if they know pricier expenditures, such as orthodontic treatments, are in their near futures.

[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]