December 17, 2013
With the end of the year on the horizon, many individuals with flexible spending accounts (FSAs) are scurrying to spend residual funds to avoid “losing” them, in accordance with IRS regulations. However, the regulations have now changed with the IRS easing the “use-it-or-lose-it” rule for health flexible spending plans. Individuals with FSAs can now carry over a maximum of $500 to the following year without forfeiture. So now, employees will not have to rush to clean out their accounts by the end of the year, or by March 15 of the following year, if their flexible spending plan has adopted this grace period.
It is important to note that an employer cannot offer a FSA carryover provision and an FSA grace period at the same time. In order to allow for this $500 carry over, employers must amend their plans to adopt the change. However, if an employer’s FSA plan currently allows for the grace period, that provision must be dropped in order to allow for the $500 carryover adoption.
Employers can implement the carryover for 2013 as long as the flexible spending plan is amended by the end of 2014. However, if the plan currently allows the grace period up until March 15, then the plan must be amended by the end of 2013 to formally eliminate this provision.
If you have any questions about this information, please contact us. We are always here to help.
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For many business owners, September tends to bring a bit of a slowdown. The chaos of getting kids prepared for going back to school has passed, and a focus on saving money tends to kick in as people prepare for the coming holiday spend. Combined, this can often translate into a lull for business owners.
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