Have an FSA? You may be able to carry over more money in 2022

Do you have a flexible health spending account through your job? Rules for the accounts have changed temporarily because of the pandemic, and that may affect how much you’ll want to save next year.

Flexible health spending accounts, or FSAS, let employees set aside pretax money from their paychecks to help pay for medical and dental care that insurance doesn’t cover.

In many cases, if you don’t spend the money by a certain deadline — often the end of the calendar year — you forfeit the cash in your account.

“They are typically ‘use it or lose it,’ ” said Lisa Myers, director of client services with the benefits consultant Willis Towers Watson.

Employers already had the option of offering wiggle room, like allowing workers to carry some of the money in their accounts into the new year or giving grace periods of a couple of months after the deadline for spending the money. About threefourths of accounts offered one of those options in 2019, according to the nonpartisan and nonprofit Employee Benefit Research Institute.

But during the pandemic, many workers skipped in-person doctor visits or delayed nonemergency treatments and didn’t use the money in their FSAS. So the federal government allowed employers to grant workers even more leeway, by extending the usual deadlines or letting workers carry more of their account balances into next year.

Employers may allow a “full” carry-over of remaining balances for next year — up to the balance in the worker’s FSA. So if you had $1,000 in your account at the end of this year, you could carry it all over into 2022. (The usual carry-over limit is $550.)

You can also contribute up to the maximum allowed in payroll deductions next year. The limit set by the Internal Revenue Service was $2,750 for 2021, but employers may set lower limits for their workers. The IRS hasn’t confirmed the maximum for 2022, Myers said.

Some workers, however, may choose to contribute less money next year if they have an extra cushion from a carry-over. It depends how much you think you’ll need in 2022.

With annual open enrollment underway at many employers, workers should log on to their accounts or check with their employer to see how much money is available and decide whether to tweak their paycheck deductions for next year, Myers said.

“Employees need to know their balances,” she said.

Employers have generally said they are seeking to hold the line on increases in health insurance costs for employees next year, given the challenging job market.

The average employee contribution to an FSA was just under $1,200 in 2019, according to the Employee Benefit Research Institute, which also found that nearly half of participants have forfeited all or part of their contributions. The median amount lost was $157. But because paycheck deductions are made pretax, employees shouldn’t fret too much about leaving behind relatively small balances, said Paul Fronstin, director of health research at the institute.

“It’s OK to lose a bit of money,” he said, “if you’re getting a tax break.”

To see how much you can save in taxes with an FSA, you can try using online calculators, like the one at Fsastore.com.

There’s a caveat with all of the temporary changes, however. Any expansion of carry-over amounts or deadlines is at an employer’s discretion — and not all of them have made changes. About twothirds of Willis Towers Watson’s clients made changes in carry-over rules for this year (for amounts retained from 2020), but fewer than half are doing so for next year, Myers said.