The Internal Revenue Service (IRS) is reminding taxpayers during the open enrollment season for Flexible Spending Arrangements (FSAs) that they may be eligible to use tax-free dollars to pay for medical expenses not covered by other health plans.
For 2024, the IRS has announced a $150 increase to the contribution limit for FSAs. Employees who choose to participate can contribute up to $3,200 through payroll deductions during the 2024 plan year. Amounts contributed are exempt from federal income tax, Social Security tax, and Medicare tax.
Employers may also contribute to an employee’s FSA if the plan permits. Additionally, if the employee’s spouse has a plan through their employer, they can contribute up to $3,200 to that plan. In such cases, the couple could jointly contribute up to $6,400 for their household.
FSAs that allow for the carryover of unused amounts have a maximum 2024 carryover amount to 2025 of $640. For unused amounts in 2023, the maximum carryover to 2024 is $610.
Taxpayers are urged to review their health care selections annually during the health care open enrollment season to maximize their savings. Eligible employees of companies offering a health FSA need to act before their medical plan year begins to take advantage of an FSA during 2024. However, it should be noted that self-employed individuals are not eligible.
Throughout the year, FSA funds can be used for qualified medical expenses not covered by a taxpayer’s health plan, including co-pays, deductibles, and various medical products. Services ranging from dental and vision care to eyeglasses and hearing aids are also covered. Employees are advised to check with their employer for details on eligible expenses and claim procedures.
Before enrollment, employees should review any expected health care expenses projected for the year. Participation in an FSA requires careful planning for healthcare activities when calculating contribution amounts. This might involve updating a medicine cabinet with necessary supplies, preparing for big-ticket expenses, seasonal needs such as allergy products, sunscreen or warm steam vaporizers, routine checkups or visits with specialists not covered by regular insurance plans, and many over-the-counter items that are FSA eligible. Out-of-pocket costs for dental and vision care are also covered by an FSA.
Employers are not required to offer FSAs, and interested taxpayers should check with their employer to see if they offer an FSA. More information about FSAs can be found in IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.
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