Deadline alert: Many workers who have contributed to a flexible spending account for health care have until Dec. 31 to spend the money or forfeit it to their employers.

The law allows, but does not require, employers to give workers an extra 2.5 months to spend the money - or until March 15 for plan years that end Dec. 31 - and some do.

Wages you put into the plan are not taxed and can be used for a wide range of out-of-pocket health care expenses, including co-payments for doctor, dentist, optometrist and hospital visits; drugs; and medical equipment and supplies. You can also get reimbursed for mileage to and from medical visits at the rate of 23 cents per mile.

Employees can get reimbursed from their account when they submit proof of a qualified expense to the plan administrator. They typically have a few months after the spending deadline to submit a reimbursement form.

To get reimbursed for anything that has an active drug ingredient, you will need a doctor's prescription, including almost all over-the-counter medicines such as aspirin, cold, cough, allergy and acne medications. Among the few exceptions: You won't need a prescription for insulin and diabetes supplies, glucosamine and prenatal vitamins.

You can be reimbursed without a prescription for medical supplies and devices, including bandages and first aid kits, reading glasses, condoms, pregnancy tests, orthotics, blood pressure monitors, contact lens solutions and - as of this year - broad-spectrum sunscreen with an SPF of 15 or higher.

Vitamins and other supplements need a letter of medical necessity from the doctor to the plan administrator, says Jeff Beadle, executive director of the Special Interest Group for IIAS Standards, an industry standards group for firms involved in FSAs.

To qualify for reimbursement, the Internal Revenue Service says a product must prevent, treat or diagnose a medical condition, Beadle says. The IRS does not allow reimbursement for what it considers health and beauty aids, including deodorant, toothpaste and toothbrushes.

Coverage can vary

Some products, such as Ace bandages or knee braces, may or may not qualify depending on their medical necessity. If you are unsure, contact your plan administrator, who makes the final decision. Some plans have a narrower list of eligible products than what the IRS allows. Some employers, Beadle says, will not permit reimbursement for over-the-counter drugs.

If you have a lot of money left over, consider big-ticket items such as an electric breast pump, big first aid kits for home and car, mobility scooters or defibrillators, says Jeremy Miller, president of, which sells FSA-eligible products online.

Starting in 2013, employees can contribute no more than $2,500 to their health care FSA each year. Employers can impose lower maximums. Previously, the IRS imposed no upper limit on contributions, although many employers set one, often $5,000.

If you fail to spend money in your account before the end of the plan year (or by the grace period, if there is one), it will revert to your employer. Some people hope that in exchange for imposing the $2,500 limit, the IRS will eliminate or modify this use-it-or-lose-it rule.

Alternatives to use-or-lose

"One reason use it or lose it was in place was because there were no regulations capping the amount an employee could put in an FSA," says Natasha Rankin, executive director of the Employers Council on Flexible Compensation.

This year, the IRS solicited comments on modifying the requirement.

One option would be to let employees cash out any unspent funds, Rankin says. Another would be to let employees carry over any unspent funds, but subtract it from the following year's spending limit. For example, a worker who had $500 left at the end of the year could carry it into the next year, but that year could contribute only $2,000, so his or her account never goes over $2,500.

Rankin says the rule is the No. 1 reason more employees don't participate in FSA plans.

At large employers that offer an FSA, only 20 percent of employees participated and the average contribution was $1,427, according to a Mercer survey. Only 3 percent of contributions were forfeited.

Although employees hate the use-it-or-lose it rule, employers are also at risk early in the year.

Here's why: Employees decide during an open enrollment period how much they want to put into their account the following year. Employees typically have access to the full amount at the beginning of the year, even though employers usually deduct the money from workers' paychecks in equal amounts throughout the year.

Suppose you decide to put in $1,200 a year. At the end of January, you have a $1,200 dentist bill. You can usually seek reimbursement for the full amount, even though you have only accumulated $100 in your account. If you leave the company midyear, before you have had the full $1,200 withheld from your paycheck, you generally won't have to repay the difference. Your employer takes the loss.

To learn more about what health care expenses qualify for reimbursement, see
