FOR some people, a flexible spending account is a tax-free, no-interest loan to pay for laser eye surgery or in vitro fertilization.
For others, it's money forgotten about until the end of the year, when they scramble for ways to spend thousands of dollars before losing the cash for good. Anything they don't spend by a certain date will be kept by their employers.
If you're scurrying to spend last year's flex money before the deadline, there are many ways to do it. Flexible accounts "are quite popular because they are so easy for employees to use," said Bob Scharin, editor of Warren, Gorham & Lamont/RIA's Practical Tax Strategies, a monthly publication for tax professionals.
First, some background: Since the 1970s, employers have offered tax-free funds in which employees can stash a designated sum of money to pay for medical expenses. The money is withdrawn from paychecks throughout the year, but the total amount is available for employees on Jan. 1.
For workers who withdraw the balance but quit before the year is up, their employers eat the difference for what has not been deposited.
But for employees who don't spend it all, their employer keeps what's left at the end of the year. That helps offset the costs of those who spend the money and run, but it can infuriate consumers and discourage some from participating in the program, says Paul Fronstin, director of the Health Research and Education Program with the Employee Benefit Research Institute, a nonprofit, nonpartisan research group in Washington, D.C.
The use-it-or-lose-it clause inspired Sen. Charles E. Grassley (R-Iowa) to take action. In 2005, he successfully pushed to extend the deadline for employees to spend flex account money. Now participants have until March 15 of the following year to spend the money. He has also been pushing (unsuccessfully) for the right of workers to roll as much as $500 into the following year's account.
Stats on how much money employees lose are not easy to come by. At Blue Cross of California, the state's largest insurer, subscribers with flex accounts set aside an average of $2,000 each year, says spokeswoman Tammy Taylor. Most subscribers spend all the money, but those who don't usually lose less than $100.
Here's what to do -- and what to avoid -- when spending your left-over flex money.
* First, check with your employer to learn the final date you can spend flex dollars from 2006. Your employer must OK the March 15 extension for it to apply to your specific plan. Make sure your company gave approval.
