Government Shutdown or Not, Your FSA Deadline Still Stands. What You Need to Do

On Oct. 1, the U.S. government shut down after Congress failed to pass a funding bill. This marked the country's 20th government shutdown since 1976, and the first one since the longest shutdown in history occurred in 2018. When a shutdown occurs, federal agencies deemed "non-essential" are forced to suspend operations, affecting both their workers and the people who rely on their services.

Despite the shutdown, certain deadlines and financial obligations remain in place, including those around your Flexible Spending Account (FSA). Here's what you should know and do to make sure you still maximize the account during this time and avoid losing funds.

Image source: Getty Images.

How an FSA works

An FSA is designed to help you deal with healthcare expenses by allowing you to put pre-tax dollars into the account to be used on qualified medical expenses. You choose an annual amount to contribute during open enrollment, and those contributions are automatically deducted from your paycheck. When you spend the funds on qualified medical expenses, reimbursements are tax-free.

If you spend FSA funds on non-qualified expenses, the IRS will treat the funds as taxable income and tax them at your normal income tax rate. You'll also be subject to a 20% penalty on the amount spent.

For example, if you spent $1,000 on a non-qualified item while in the 22% tax bracket, you'll end up owing $200 in penalties (20% of $1,000) and $220 in taxes (22% of $1,000). This works out to $420 owed to the IRS, which, in most cases, isn't worth it unless it's truly an emergency and you have no better option.

The only exceptions are if you're disabled, or age 65 or older. You won't face the 20% penalty, but the withdrawn amount is still taxable.

Your FSA deadline remains, regardless of the government shutdown

The maximum amount you can contribute to an FSA in 2025 is $3,300. However, the amount you choose to contribute to an FSA must be spent by the end of the plan year. It's a "use-it-or-lose-it" case where any unspent funds are essentially lost.

Some plans allow you to roll over up to $660 into the next plan year, while others offer a 2.5-month grace period for spending the funds. Your plan can offer either one, but not both.

The last day you can spend your FSA funds is Dec. 31, unless your plan offers a grace period or an extension (which are typically on a case-by-case basis). If the government shutdown lasts until then, it'll be the longest shutdown in U.S. history. However, we shouldn't assume it won't happen. Even if it does happen, the FSA spending deadline remains.

The same also applies to the open enrollment period, which typically runs from mid-November to mid-December (be sure to check your plan's specific window). If the shutdown is still going on, you're still required to elect your benefits and submit your FSA contribution amount for the upcoming year.

Items you can use your FSA funds on

If you have funds in your FSA that you need to use before the year's end but don't have any doctor visits, prescriptions, or other common expenses coming up, here are some lesser-known products and services you can use FSA funds on:

• Acupuncture sessions
• Blood pressure monitors
• Breast pumps and lactation supplies
• Chiropractic treatments
• Dental night guards
• Hearing aid batteries
• Orthotic insoles
• Prenatal vitamins
• Sunscreen (SPF 15+)
• Travel sickness remedies

These are just 10 options -- there are thousands more to choose from. The best way to find out specifically what's eligible and relevant to what you may want or need is to check your plan's eligibility list or the FSA Store website.

The Motley Fool has a disclosure policy.