When times are tough, wasting money is the last thing you want to do. But every year, U.S. workers end up losing hundreds of millions of dollars because they forget about the funds they wisely set aside for health-care and dependent-care expenses.
About 85% of employers offer flexible spending accounts to their employees. With a health-care FSA, you can arrange to have pre-tax money taken out of each paycheck that you can use later for doctor bills, prescription drugs and other qualifying medical expenses. Similarly, a dependent-care FSA lets you pay for day care or babysitting with pre-tax dollars.
The benefit of an FSA is obvious: Using pre-tax dollars to pay for those expenses can save you a fortune over the course of a year.
But the tradeoff is that if you don't use up your FSA money in a given year, you lose it. According to Mercer Global, workers wasted between $150 million to $200 million of unspent FSA money in 2010. That may be why only around one in five workers actually participate in FSAs.
Under the Wire
But while some FSAs have Dec. 31 as the cutoff date, others give you some extra time. Back in 2005, the Treasury Department changed the rules to allow employers to give workers until March 15 to spend their FSA money from the previous year. The idea was to avoid problems with workers not being able to get medical appointments in December, immediately before the old deadline.
Employers aren't required to extend their deadlines, however, so be sure to check with your employer about what your deadline is. Xerox (XRX) and General Electric (GE) are just two of the many private employers that offer a March 15 deadline for FSA reimbursements, along with a wide range of public employers.
Contributing to an FSA is a smart move. Fortunately, for many workers, it's not too late to use your remaining 2011 FSA money before you lose it.
More on saving on taxes: