There are two ways an employee may typically pay out of pocket medical expenses with pretax dollars, either through the use of a Flexible Spending Accounts (FSA) or a Health Reimbursement Arrangements (HRA.) There are certain deadlines and requirements with these types of arrangements.
FSA’s and HRA’s are not to be confused with Health Savings Accounts (HSAs). HSAs also allow the policy-holder to pay for out-of-pocket health expenses with pretax dollars, but HSA’s have no deadlines and are much more flexible. Both the employer and employee may contribute to an HSA. Contributions become an above the line deduction and may be rolled over each year. Funds in an HSA belong to the individual, never reverting back to the employer.
Flexible Spending Account (FSA)
Through payroll deductions for those on a group plan, an employee may enroll in an FSA. Unlike an HSA, an FSA is a use it or lose it type of account. Any monies left in the account at the end of the year revert back to the employer. Many employees leave funds in their FSA at the end of the year, funds that could have been used for over the counter medications and a host of other medical related expenses. Possibly your employer offers a roll-over option and/or a grace period regarding these funds.
If you still have funds in your FSA at the end of the year and hate the thought of losing the money forever, there are websites that specialize in products that the IRS deems qualifying FSA purchases (fsastore.com as an example/I have no affiliation.)
Health Reimbursement Arrangement (HRA)
HRA’s are funded solely by the employer. Like an FSA, it is a use it or lose it account. One major difference is that the employer funds the account, not the employee through payroll deductions like the FSA.
If you have an FSA or HRA it is important that you know what is and is not considered eligible medical expenses. It is also important to know the deadline for filing for reimbursement and any documentation required. All this information will be supplied to you at enrollment.