Don’t Miss Key Deadlines: Maximize Your HSA or FSA Contributions and Stay Compliant

FSA and HSA can be used for medical bills.

As the year comes to a close, many taxpayers focus on filing deadlines and overlook one of the simplest ways to reduce their tax bill: properly funding their Health Savings Account (HSA) or Flexible Spending Account (FSA). These accounts offer powerful tax advantages, but only when eligibility rules and deadlines are clearly understood.

Health Savings Accounts are available to individuals enrolled in a qualifying high deductible health plan. HSAs are uniquely valuable because they offer a triple tax benefit—contributions are deductible, growth is tax-free, and withdrawals used for qualified medical expenses are not taxed. This makes HSAs not only useful for current healthcare costs but also a long-term planning tool for future medical expenses, including those in retirement.

One of the most commonly missed opportunities with HSAs is timing. While many people assume contributions must be made by December 31, HSA contributions can generally be made up until the tax filing deadline, typically April 15 of the following year. This allows eligible taxpayers to make or increase contributions after year-end once their cash flow and tax situation are clearer. However, eligibility is key—once you enroll in Medicare or lose high deductible health plan coverage, contributions are no longer allowed, even if you are still working.

Flexible Spending Accounts operate under a different set of rules and require more careful forecasting. FSAs are employer-sponsored and funded through payroll deductions, with contribution elections usually made during open enrollment. Unlike HSAs, FSAs are often subject to use-it-or-lose-it rules, meaning unused funds may be forfeited at year-end unless your employer offers a limited rollover or grace period.

FSAs can still be highly effective when planned correctly, especially for predictable expenses such as copays, prescriptions, dental work, vision care, or dependent care costs. The challenge is balancing contributions so you maximize tax savings without overfunding and risking forfeiture. Employer plan documents matter here, as rollover limits and grace periods vary.

Another area that creates confusion is coordination. Some taxpayers contribute to an HSA through payroll while also making direct contributions outside of work, unintentionally exceeding annual limits. Others assume they can contribute to both an HSA and a general-purpose FSA at the same time, which is not allowed unless the FSA is limited-purpose and restricted to dental or vision expenses.

What makes HSA and FSA planning especially important is that missed opportunities are often permanent. You cannot retroactively contribute to an FSA after the plan year ends, and you cannot reclaim HSA eligibility once it is lost. Small oversights—such as not updating elections after a job change or misunderstanding plan eligibility—can result in higher taxable income than necessary.

Taking the time to review your health plan, contribution limits, and deadlines before year-end can result in meaningful tax savings with relatively little effort. These accounts are most effective when they are treated as part of an overall tax strategy, not just a benefits checkbox during open enrollment.

HSAs and FSAs are straightforward tools, but the rules surrounding them are anything but intuitive. A short review before deadlines pass can help ensure you are maximizing tax savings without creating compliance issues. If you have questions about eligibility, contribution limits, or how these accounts fit into your broader tax picture, reach out to info@mkhstaxgroup.com with questions.