By Brittney Laryea & Shen Lu
The end of the calendar year is generally an important time to pay attention to your workplace benefits accounts. You may already have gotten an email from the head of your workplace’s HR department about making your elections for the coming year and maybe even made them already. While you’re at it, take a look at the balances in your flexible spending accounts and transportation benefits accounts — they may need your attention.
Workplace benefit accounts like your health flexible spending account (FSA) and transportation benefits accounts help you save money on the important line items in your budget like your healthcare bills and getting yourself to and from work. Since the accounts are funded with pre-tax dollars, you could help your dollars go up to 40% further on common expenses — like getting a checkup or a bus pass — that help you keep and maintain your job. However, if you don’t quite know how to best use these accounts, you could actually end up losing the money you have socked away in your benefits accounts.
Read on or click ahead to learn the ins and outs of using these benefits accounts and what you can do, if anything, to save your money when you’re in danger of losing it.
Flexible spending accounts
What is a flexible spending account?
A flexible spending account (FSA) is an employer sponsored reimbursement plan. It allows you to set aside pre-tax money and spend it on eligible medical expenses.
For 2018, you can contribute up to $2,650 to your health FSAs, up from the 2017’s limit of $2,600.
In an ideal world, you’ll avoid losing income by using up all your funds for eligible medical expenses by deadline. But the reality is that it’s tricky to budget for medical expenses for the next year (generally you can only adjust your contribution from each paycheck during open enrollment or during a qualifying life event, such as marriage or birth of a child). Many find themselves with excessive balance in their medical FSA at the end of the year.
It’s actually not that flexible given its “use it or lose it” rule — you have to use all the funds by the deadline, otherwise you lose the money. Several plan advisers confirmed to MagnifyMoney that many people underutilize their medical benefits. FSAStore.com, a one-stop-shop website stocked with FSA-eligible products, reported that each year, hundreds of millions of dollars was forfeited back to employers simply because consumers do not deplete the funds in their accounts.
So how can you make the best use of your medical FSA and avoid wasting money? We have done research and asked experts for you.
How can I use my health FSA funds?
First off, the medical FSA reimburses you for you or your dependent’s expenses that are not paid by your health insurance.
The eligible expenses include copayments, coinsurance and deductibles, prescription costs, vision and dental expenses and many over-the-counter (OTC) items — prescribed or unprescribed. But note that you cannot pay your monthly insurance premiums with the FSA.
If you have money left over in your FSA, you may want to consider getting new prescription glasses, prescription sunglasses and contact lenses. Those are some of the most common big-ticket items you can purchase with your FSA.
You can also stock up on things like first aid kits, contact solution, bandages and sunscreen that you may use year-round.
Your FSA plan provider will have a list of eligible over-the-counter items you can purchase at the pharmacy with your FSA, such as this one. Many of the pharmacy sites have sections of their sites that list all the FSA eligible items.
Another possible way to use the money would be scheduling check-ups with all your physicians. Your annual physicals and other preventative care are covered by your health plan, but if you need special medical treatment, you can use the remaining funds for copays, coinsurance or prescriptions.
Many FSA providers recommend you visit FSAStore.com.
How much should I contribute to my health FSA?
Becky Seefeldt, director of marketing at Benefit Resource, a benefits programs provider, said the average 2017 contribution was $1,250, based on the company’s 300,000 participants. That’s roughly half of the maximum amount one could contribute for the year. For those who over-contribute to their FSAs, by the end of the year, Seefeldt said, they usually have less than $100 left in their account.
Experts suggest you contribute conservatively because there is a chance that the unspent money might be forfeited. But everyone has a different situation; it’s hard to give a single guideline that fits all.
You really need to do the math when budgeting your contribution for the next plan year during open enrollment.
Nicole Wruck, a national health practice leader at Alight Solutions, told MagnifyMoney that most of the company’s clients over-contribute every year. She suggests consumers keep track of their health care expenses they had over the last year and plan accordingly for the coming year.
You will need to do the math based on the factors below:
- What did you spend on prescription drugs?
- What did you spend at the doctor, or the dentist, or the eye doctor?
- Do you have any upcoming things planned in the next year that might make you experience some additional costs? For example, are you or your dependent expecting a baby? Will you need new glasses?
To help yourself run the numbers, you will want to study your health care plans. Know your deductibles — the amount you pay for health care services before your health insurance begins to kick in — as well as your copays and coinsurance. Learn what your out-of-pocket maximum is — the most you have to pay for health care services in a plan year. After you hit your out-of-pocket max, your insurance company covers your healthcare costs for the rest of the year.
Visiting your doctors can also help. Sometimes your year-end doctor visits can help you estimate your next year’s out-of-pocket medical expense. For instance, if your dentist tells you that you will need orthodontic treatment in the near future, then consider maxing out your FSA for the next plan year to cover the big dentist bills your insurance company won’t pay.
What happens to leftover funds at the end of the plan year?
Traditionally, you would have to use up all your remaining funds by Dec. 31. But there are two options employers can adopt to make the rules more lenient now.
The roll-over option. It allows up to $500 in your FSA per year to roll over into the next plan year, so participants don’t have to rush to use the remaining funds. Seefeldt said about 40 percent of employers now adopt the roll-over option.
An extended grace period. This gives participants an additional two and half months — through March 15 — to use up the money from the previous year. At the end of the grace period, all unspent funds will be forfeited to the employer.
Depending on how your company decides to do with the FSAs, you may have a little bit more leeway to use your funds by the year end. Check with your human resource department and your FSA plan provider to find out which option is available to you.
What happens if I leave the company before I use all my FSA funds?
If your eligible expenses incurred before you left the company, you may be able to request reimbursement through your company’s claim submission deadline.
If you leave the company in the middle of the year but you have used more funds in your flexible spending account than contributed. You may not be required to pay back your company.
You have access to the total amount you have allocated for the year after your first medical FSA deposit, regardless of the balance in your flexible spending account. You are reimbursed based on your company’s pay schedule as you submit claims.
For example, if you elected to put $2,000 into your FSA throughout the year, and you have a $2,000 dental expense in May, your FSA would reimburse you for the whole $2,000, even though you’ve only contributed about $833 by then.
If you jump ship in August, you may not have to pay back the rest of your contribution. Your company will cover it: It agrees to take the potential financial risk when it signs up for the FSA program. Don’t feel too guilty just yet — your company may be able to offset the financial loss with the unspent funds forfeited from other employees.
Now, if you have money left unused in your FSA, first, try to use it as much as you can before you part ways. But If you can’t use it up by your last day, you may have a chance to extend your FSA benefits if you choose to enroll in COBRA.
COBRA allows former employees, retirees, spouses and dependents to get temporary continuation of health benefits at group rates. FSA is one of the COBRA-eligible benefits.
Generally, you have until the end of plan year to use up money left in your FSA through your prior employer, but it’s most common for someone to take their FSA COBRA for one or two months and use the funds quickly, Seefeldt said. Under COBRA, you can continue to make your health plan contributions (but pay an additional 2 percent administrative fee) before the new plan kicks in, according to the Society for Human Resource Management.
Say you leave your company in August but there is $400 left in your FSA, and you plan to continue your health insurance coverage through your previous employer for two months before your new insurance plan kicks in, you can keep submitting expenses up to $400 in that period of time but pay an administrative fee that’s 2 percent of your monthly premium. But you are not required to purchase the health coverage in order to use your FSA balance.
Again, money in your FSA cannot be used to pay your premiums. But you can use it to cover eligible medical costs.
If you’re not eligible to continue your FSA through COBRA, try to use up the money before your job ends so that you won’t leave it on the table.
Transportation benefit accounts
What are commuter benefits?
Transportation benefit accounts, also known as commuter benefits accounts, let employees use pre-tax dollars to pay for the costs of commuting. The accounts are meant to act as an incentive for employees to use eco-friendly transportation options like carpools, mass transit or bikes on their commute to the workplace.
Commuter benefits help many workers save on their transportation costs. But, it’s possible just as many workers aren’t completely sure how their transit benefit account works, or how to make the most of it.
How can I use my commuter benefits?
If you drive to a park-and-ride, catch mass transit or ride a bike to get to work, you may be able to use pre-tax dollars contributed to a commuter benefits account to cover some or all of the cost of your commute. However, if you ride solo to work or don’t use a bike or mass transit options available to you, you won’t be able to use commuter benefits to, let’s say, pay for the gas your personal vehicle burns during your bumper-to-bumper commute each morning.
However, you may be able to take advantage of parking benefits, which we’ll explain below.
You can use the money in a transportation benefits account to pay for any of the following eligible expenses:
- A ride in a “commuter highway vehicle” to or from home and work.
- This is another way of saying carpooling. Riding to work in a commuter highway vehicle counts if the vehicle can seat at least 6 passengers, according to the IRS. You might not have to go through the hassle of organizing a carpool with your coworkers or neighbors to use your transportation funds this way. Some commuter benefits programs allow you to carpool using rideshare apps like Lyft or Uber, too. All you’d need to do is use your commuter benefits card to pay for UberPOOL or Lyft Line rides and join the carpool when it arrives to pick you up.
- A transit pass.
- A transit pass is any pass, token or other tool that permits you to ride mass transit — like a train, ferry or bus — to work.
- Qualified parking.
- If you need to pay to park on or near your workplace, or you have to pay for parking in order to catch a ride on public transit for work or you pay for parking for any other work-related reason, you can use your transportation benefits to cover the charge.
- Qualified bicycle commuting reimbursement.
- You can use up to $20 per month in transportation benefits to purchase a bicycle, make improvements or repairs to the bike, and pay for bike storage as long as you use the bicycle for regular travel between home and your workplace. Be warned: If you use your transportation benefit to be reimbursed for commuting via bicycle at some point during the month, per IRS rule, you won’t be able to use the transportation funds for any of the three aforementioned eligible expenses in that particular month.
How much should I contribute to my transit benefit?
How much you contribute to your commuter benefits account will depend on how much you spend on transportation to and from work each month. Look at your monthly commuting expenses. Do the math to figure out what you would need to contribute from each paycheck to cover the cost of your commute to work. To avoid over-contributing to your transportation benefits account, be sure to to pull out a calculator.
Step 1: Estimate how much you spend on transportation expenses — monthly parking pass, bus pass, etc. — each pay period.
Estimating your commuter benefits should be easier than, say, trying to guess how many doctor’s visits or prescriptions you’ll need to cover in the coming year. “With a commuter benefit you are making an estimate,” says Joseph Priselac, Jr., CEO P&A Group, a Buffalo, N.Y.-based employee benefits administration company. “As long as you have a job and you know you’re going to keep going to it, you know how much you will spend.”
Step 2: Elect to contribute that amount for the year. The amount you elect will be divided by the total number of remaining pay periods for the year. The benefit will be deducted from each paycheck and placed in your transportation account for your use when you need it. If you change your annual contribution, the remaining number of deductions will be adjusted accordingly to reflect the change. If, for example, you elect $1,200 for the year and are paid monthly, $100 pre-tax will be deducted from your paycheck to your transportation account.
Beware of contribution limits
Commuter benefits: In 2017, the maximum monthly pre-tax contribution limit for commuter benefits is $255, or $3,060 in a year. Moving forward, the IRS may decide to change that limit. The federal agency reviews and sets the limit annually. If you bike to work, you max out at $20 per month.
Parking benefits: An additional $255 per month. If you’ve got to ride mass transit to get to work and pay for parking, Priselac says that limit is technically doubled, since you can max out $255 for parking and another $255 for mass transit passes each month.
Unless you are certain sure you will use up the maximum in transportation spending for the year, don’t simply contribute the maximum amount you can to your transportation benefits account.
What if I want to reduce my contribution?
If, for whatever reason, you decide you don’t need to contribute as much or you want to contribute more to your transit benefit fund during the year, that’s not a problem.
Unlike an FSA, for which your contribution election can’t be changed during the year, “you can change your election anytime you want,” says Priselac.
To clarify, you can change your commuter benefits election as often as your company allows. For some, that may be once per pay period, for others, it may be once per quarter. It’s one of the few benefits you can change mid-year. Consult with your employer’s human resources department to find out how often you are able to change your election.
“If you’re not sure how much you will be spending, start by contributing a small amount,” says Caspar Yen, Senior Director of Product Management at Zenefits, a human resources software company. “There’s no need to over contribute to play it safe.”
That said, if you feel you’ve contributed too much to your commuter benefits account to use up within the period, you can stop the deductions and use up the balance you’ve accumulated until it runs out, then restart your contributions. Just be sure to keep an eye on your transportation benefits balance so you know when to restart your contributions.
What happens to leftover funds at the end of the year?
Transit benefits rollover each year so long as you are still with the company and the company still offers the benefit. That means you don’t have to rush to use leftover funds at the end of the year.
This is in contrast to a flexible spending account, which has a ‘use it or lose it’ rule, which we covered above.
In a sense, there is no ‘plan year’ for transportation benefits, although your company may ask that you confirm you’d like to stay enrolled in the program each year when you elect your annual benefit contributions. Transportation benefits accounts roll over each pay period and should roll over into the coming period at the end of the year. That means there’s no danger of losing any of the money you’ve contributed so far, as long as you remain employed with that particular employer.
What if I quit my job or get laid off?
“As long as you are still working there and you have work related transit expenses the money stays,” says Priselac.
But if you quit your job or are laid off you could lose some or all of the money remaining in your transportation benefits account. If you’ve been over-contributing, any money you don’t use up will be lost to you, and returned to your employer.
The good news is that some benefit programs will give employees a grace period to submit reimbursements requests for any transportation expenses incurred during their employment — even if they quit.
If you know you may no longer be with the company or the company is planning to terminate its program, there’s one thing you can do to save your money.
“Before leaving a company, employees can make a large eligible purchase,” says Yen.
In the Bay Area, for example, an employee can purchase a clipper card with up to $300 in credits. If the transit method you take offers individual tickets, you could purchase a large number. Or, if you are able to load your transit pass with cash, you could place a large amount on your pass.
For example, those in the New York City metro area might load a large amount of money onto their MetroCard and use it up until it’s depleted.
Whenever you’re making a decision about benefits, it helps to talk to your HR department or the benefit provider, just to be sure you understand the rules. Mistakes you make when choosing benefits can end up costing you a lot of money, so ask questions and avoid leaving your decisions to the last minute of open enrollment.
The post How to Maximize Your FSA and Transit Benefit Before You Lose It appeared first on MagnifyMoney.