Change in FSA Use It or Lose It Rule

11/16/2013

The Department of Treasury announced a change to the “Use It or Lose It” rule for health Flexible Spending Accounts (FSA). The rule previously required individuals to forfeit any unspent money in their FSA at the end of the year. Effective immediately, employers that sponsor an FSA which does not include a grace period can allow employees to roll up to $500 of unused funds at the end of the plan year. Employers that choose to allow for the carryover must amend their Section 125 plan to include this provision. The $500 does not count against or affect the $2,500 salary reduction limit for each plan year. Please note that an FSA cannot have both a grace period and a carryover.

The change was based partly on comments that pointed to the “difficulty for employees of predicting future needs for medical expenditures, the need to make FSAs accessible to employees of all income levels, and the desire to minimize incentives for unnecessary spending at the end of the year.”

To view the Treasury press release: http://www.treasury.gov/press-center/press-releases/Pages/jl2202.aspx