Last-Minute Flexible Spending Account Ideas

Time to pay the price for being healthy, and try to use up the rest of the balance in my Flexible Spending Account. First up, here is my list of usual suspects:

Starter Checklist of FSA-Eligible Items

  • Advance refill of prescriptions
  • Eye exams
  • Contact lenses and lens solution
  • Pain killers
  • Cold and flu medicines
  • First aid supplies for emergency kits
  • Condoms and other birth control items
  • Ear plugs
  • Acne medication

Big Lists, More Ideas
The most authoritative resource is probably this list of eligible medical deductions from the IRS. Then there are some nicely organized lists from health insurers like Aetna or third-party FSA administrators like Conexis.

You can also search for inspiration at the special FSA-eligible sections of Drugstore.com, CVS, and Walgreens.

Finally, check the final date allowed on your specific plan. If yours is like mine and ends on 12/31, make sure that you have a receipt dated in 2008. Certain plans may allow you to spend your money up until March of next year. This may give you more time to line up a doctor’s appointment and get some care you’ve been putting off.

When will they fix this broken system? For one, if you are desperate you can always buy some junk, fax in the receipts, and then return the items. Unethical and illegal? You bet. But why are we forced to estimate our unpredictable expenses in a use-it or lose-it format?

Comments

  1. Hmm… purchasing items with FSA with the intent of returning them is fraud. Let me know who’s doing it, because the guv’ment gives a 10% reward to all fraud cases reported.

    If I alert the IRS to someone who filed their taxes incorrectly, and they give me the 10% reward, do you think they’ll remember they gave it to me if I don’t report it on the next return? :)

    Jonathan, I recommend that you edit your post to remove the “unethical and illegal” portion. Let’s try to earn our money and savings the legal way.

  2. Oh, and I forgot to mention-
    great post and reminder. Unfortunately, I used all my FSA monies in July with an emergency medical condition (I’m more than 100% fine now). I agree that the system is messed up; I don’t like paying payroll tax + embedded tax + state tax on unforeseeable emergency medical services.

    I do think that it’s still a good program, even though that portion of it is broken. The alternative to a functional but partially broken system is either a fixed system or no system at all. That I can avoid payroll tax on a portion of my medical treatment is wonderful, and I enjoy the benefits greatly. That I have to predict my unforeseeable medical future up to a year in advance is crazy. I better call my psychic- maybe Ms. Cleo will be right THIS time…

  3. I have to agree with Jon.

    Not only would that be fraud it would also be tax evasion. You MIGHT be able to get away with that if you reported that income as ordinary income on your 2008 tax return.

    You have to play by the rules, even if is a ‘broken’ game.

  4. Sounds like an opportune time to plug the value of an HSA. Too bad a high deductible plan must accompany an HSA. Nonetheless, I think it’s a good deal for us while we’re young and healthy.

  5. It’s a little concerning to be thinking about what definitely appears to be fraud…what about choosing another option?

  6. Dan Isaacs says:

    I’m not so sure it is fraud. If you did not buy the items and return them, is the gov’t going to get any money? If anything, you’ve paid local sales taxes as a result of your “fraud”. But if you don’t spend it, it just goes to your employer. Do they pay any taxes on it? You certainly won’t. And you won’t get any benefit from YOUR money.

    There should be a provision that allows you to get a refund without reciepts, but that refund must be subject to income taxes. That would be fair. As it is, it’s not a fair system.

  7. I’ve never done it (heck, I don’t even have an FSA) but I don’t have any moral issues with the buy-and-return if the alternative is to lose that money. It would get unethical if somebody intentionally over-estimated the amount they put into the FSA in order to evade taxes, but I think most of us are trying to play by the rules and pay our fair share of taxes. The day the IRS knocks on my door and demands to see my Q-tips I’ll stand corrected. :)

  8. Already spent mine this year, but in past years I have gone out and bought $100 worth of contact lens solution.

    I’m moving to an HSA next year with a high deductible plan, so use it or lose it will no longer be an issue. I think these will replace FSA’s in the coming years, as more companies will try to reduce health care expenses by forcing their employees to really think about unnecessary medical care.

  9. This is the first year I’ve had to worry about use it or lose it, mainly because I haven’t received a bill for physical therapy and two doctors. In the past, I’ve always paid the co-pay at the time of service and received a receipt. The PT and doctor associated with this facility don’t do it like that, which, for me, is annoying. I didn’t keep track of how many visits so I’m unsure as to how much I’ve spent. Most years I don’t take out enough–this year, well, it’s kind of a crapshoot.

  10. I just spent about $120 of my FSA money that I forgot about on drugstore.com. Live.com is offering 25% cash back for orders from drugstore.com.

  11. I have had an HSA for the past two years and I am going back to “regular” health plans. My doctors visits range around $90 a pop (as part of the high deductible stuff), and my HSA account is only earning 1%. Granted, my company tossed in $500 per year, but I could get 2-3% in a non-sheltered account (or 4+% in an deferred annuity). I thought I would use it as a long term tax-deferred account, but I am second thinking that. I am sooo glad I at least did not put it in the mutual fund part (but that also required $2500 min to open that…).

  12. @Dan Isaacs:
    It absolutely is fraud. You are evading income taxes and therefore subject to a tax penalty. This assumes that you had the INTENT to return the items purchased via a FSA.

  13. I too no longer have FSA because I have a HSA, which basically give me the same flexibility and tax advantages except no more use-it-or-lose-it.

    Instead of buying and returning FSA items, I have bought generic medicine (e.g. ibprofen) with the FSA money when there is a rebate so that I can legally get the medicine and money. Exchanging the medicine for something you need (e.g. cough syrup, flu medicine etc) later down the road is probably safer than returning and getting cash back.

  14. Yeah, the use it or lose it issue with an FSA is not good. Many of my co-workers don’t participate as they aren’t able to anticipate their health care needs for the following year. While I can’t either, I still know I’ll need contacts, glasses, solution and guestimate going to the doctors x times per year at x co-pay amount.

    The FSA has been very valuable to me because I don’t itemize, and it is only one of two ways (in addition to retirement plan) I can save money on taxes.

  15. I’m pretty sure most people know they can return FSA items, at least based on my experience. I’m not advocating the use, just pointing out the flaws in the current system.

    In my opinion, they should really open up HSAs for everyone. People would still have to use it for medical purposes, but could manage it over time. There are already a good number of HSA administrators.

    Anyhow, I got an eye exam and some contacts in 2008 and on January 1st, I can get my glasses, since I only get one or the other each year.

  16. Does the FSA cover glasses expenses or just the exam?

  17. IRS has granted grace period till Mar, 15th next year back in 2007, although FSA health plans are not required to implement it. So better check with your FSA administrator first. If they allow it, then no rush at all.

  18. Dan Isaacs says:

    @ Jon, do the companies have to pay taxes on the leftover amounts, if you don’t claim them? IMO, this is pivotal to determining if the Gov’t is being defrauded of any tax revenue. I can no more say it is not fraud, than you can say it is, without knowing that.

  19. @Dan Isaacs:
    I think you’re missing the point- we’re not talking about left overs. We’re talking about a way to obtain spendable cash without paying income tax for it by purposefully returning items purchased on the plan. For that money, no, the IRS does not get any of it, and it is beyond a shadow of a doubt unethical, illegal, and considered fraud by our government. It can (though usually isn’t) be reported, and on top of the taxes, the fraudster would have to pay a penalty. The reporting party will usually remain anonymous and receive 10% of the recovered revenue.

    To answer your question, however, usually the company that administers the account gets the “lost” money. They usually split much of it with the employer, IIRC. For that money, yes, the company or companies involved must file this as income (and thus pay income tax for it).

    EDIT: Ah, I see where you’re coming from now. You did get the point :). But I still answered your question above to show that it is fraud.

  20. If you have an FSA, check your company’s policy if you spend all the money and then quit early in the year. It’s usually not mentioned, but most companies will not require you to pay back the funds (I found this out from my HR person before leaving). So you could contribute the full amount, get laser eye surgery in January, get reimbursed, quit, and only have to pay a portion from the Jan paycheck. Most companies fully fund the account at the beginning of year, and see it as a wash if you don’t pay back everything you used.

  21. “Does the FSA cover glasses expenses or just the exam?”
    It covers glasses and contacts – whatever fancy frames you want. This is the way I used it in the past – just get a new pair of glasses.

    I ended up needing a crown this year – a tooth side broke for no reason, and this together with periodontal surgery I needed helped me use up the whole thing fast.

    Next year I am a bit worried I put too much, but our plan has additional 2.5 months grace period until March 15th. If I end up not using it till then I’ll just order another pair of glasses… I think given that IRA allows employers to provide this grace period, it’s pretty nasty that not all companies take advantage of it.

  22. Dan Isaacs says:

    then i agree, Jon, it is fraud. But I maintain it would, in this use case, be of such a little amount that it’s essentially meaningless. We’re talking tens of dollars of lost revenue. The reporting party would stand to make $5-10, and that is presuming the IRS felt compelled to chase after it.

    And that does not even factor in the issue of fairness. As it is, fraud is the ONLY method we have to reclaim our money. The intent in these cases is not to defraud the Gov’t, it’s to get back money that was not used. And this money was not used because the program is poorly structured.

    Is it wrong to not pay taxes on it? Yes. But it is also wrong to hand it over to someone else because you were unable to accurately forecast your expenses. The program should allow the balance to be returned and treated as taxable income.

  23. Lasix surgery is covered by my company’s Flexible Spending account which could provide considerable savings. Although my vision is alright now, I may consider this option in the future

  24. Dan Isaacs says:

    Marshall, that’s exactly what i used mine for this year. best money I’ve ever spent!

  25. Financial Fellow, my organization does the debit card too which is nice but I still have to fax in the receipts and form afterwards. Our FSA company is notified the card is used and then sends me an email saying a receipt is required. The good thing about the card is you don’t have to put the money up front and get reimbursed which saves a trip to the bank.

  26. Financial Fellow says:

    My company just switched our FSA vendor. Instead of having to fax in a form for every expense reimbursement they gave us a MasterCard Debit Card. Now, whenever I buy contact lens solution or any medical products from the grocery store or pharmacy I can pay directly with my FSA card. It makes it so much easier. Does anyone else out there get a debit card with their FSA plan?

  27. Financial Fellow says:

    Hmm…Perhaps I’m required to send in receipts as well… I’ll have to read the materials a bit further. Either way, your right, it does mean that I don’t have to deposit reimbusrement checks anymore. Thanks, JB.

    Financial Fellow

  28. lol @ “Acne medication” :-)

  29. I had an FSA my first year of work..kind of a hassle. Since then I have been on an HSA. Definitely worth it. If I end up spending $600 at one doctor visit – sure it seems like a lot, but at the end of the year, even if I hit my deductible – I am still paying less than the original plans pay in premiums for the year. YMMV. There are some other nice good feelings that go with an HSA, too. :) It just feels so much better knowing that my contributions won’t be lost at the end of year. So, my advice to those with an FSA? Try to use it up early, or reduce your contributions some if you are doing this every year’s end.

  30. @Financial Fellow: My current employer does not offer an FSA but all my past employers since 2000 have. And at all of them I did have a Visa or Mastercard to use for direct purchases. The good thing was they only requested receipts for things that were not obviously bought at a pharmacy or doctor’s office. For instance, they never once request a copy of a copay receipt, nor any purchases of prescriptions at places like Walgreens, Walmart, etc. They did request receipts when my wife bought things like contact solution at the local grocery store, etc.

  31. It’s not really a “broken” system because it works both ways. If you fund your FSA plan to the maximum extent and then switch employers after the first pay period, you will still have 100% of your FSA funds available for the year, despite the fact that you have only paid a small percentage. The rest was covered by your old employer (who are the same folks who get back any unused funds at the end of the year). I *think* you can even fund your new employer’s FSA plan 100% and use that also.

    BTW, still waiting for that Uncle Scrooge post.

  32. I switched to our company’s new HSA plan last year. It is definitely better than the use it or lose it FSA. I do wish we had a debit card as cash flowing the medical expenses out of pocket until we can get reimbursed is kind of a pain since so many of the doctors and hospitals require you to pay your anticipated out of pocket expenses up front.

  33. Mike Hardin says:

    @Michael

    My HSA does have a debit card. If yours does not, why not get a separate credit card that you use just for this purpose? You can pay those doctors and hospitals when services are rendered, and pay the credit card in full the next month with your HSA reimbursement. I often do this even though I have access to the debit card because it allows my money to sit in my HSA and earn interest a little while longer, and earns me cash back on my credit cards reward program.

  34. I’m about to lose my $175 FSA funds from last year. So much for staying healthy. I’d never consider this plan again. Bad idea. Use it or lose it is unacceptable. Why not use it or roll it over and be civil about how I can spend my own money?

  35. Mimi in Chico says:

    Ok, I understand why buying something and then returning it is tax fraud. But, if no one blows the whistle on you, how would the IRS ever find out that you returned something? Am I missing something? Is there a system in place that I’m unaware of that checks these things?

  36. Whatever diabolical, twisted genius came up with the FSA system must be a sadist.

    Why must we be forced to gamble – why wager your best guess of expenses a year out? You’ll never be right – you’ll only be too high or too low.

    The stress level and the paperwork burden in trying to apply any leftover monies at year end is criminal.
    And the down sides for both are absurd – why should either the employee OR the employee risk losing money.

    I am playing the numebrs and paperwork game right now, with the added benefit of cobra nonsense.

    (Shame on me for being healthy this year and neither hitting my deductible NOR using all my FSA money.This is actually forcing me to seek unecessary healthcare – one of the biggest problms with this country!

  37. Didn’t you guys notice that you have a $3500.00 deductiable? While Management has like a $500.00 on for them, which I this is very unfair, I am sure glad I don’t work there anymore. They worked as little people in TLE. Once we only had two people counting me, I was a service writer, Tech, and could work the register. I was running up staires to write up car’s then running back to finish lower bay, doing upper bay, cleaning the car, adding oil running down stairs to check for leaks. This lasted 5 hours. I told the store Manager we aren’t supposed to open with just two people what if I get hurt, no one can hear me in the pit? He knew how to work TLE but wouldn’t come help. According to Walmart rules you can not open with just two people in TLE!!! I wish Sam and his oldest son were still alive things were way different!!

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