Flexible Spending Account “Use-it-or-lose-it” Rule Changes for 2014

Just in time for the fall open enrollment periods, the Treasury Department is changing the rules on flexible health spending accounts (FSA) to allow taxpayers to carry over $500 at the end of the year. It is up to the employers to decide whether to allow a carryover. If the employer decides to allow the $500 carry, they have to amend their plan documents. Many employers already allow a grace period at the end of the year to give employees more time to spend down their accounts, but the new rules say that employers have to choose between the old grace period and the new $500 carry over provision.

In some cases, employees could be worse off with the new rule. If an employee had $1,000 left in their account at the end of a plan year in a plan that had a grace period, they potentially could have used the entire $1,000 during the grace period and wouldn’t lose it. If the plan adopts the new $500 carry over rule, they would be out $500. This still leaves employees with the problem of guessing during open enrollment what they might spend the following year.

An estimated 14 million families already participate in health FSAs. The changes may encourage other workers to use the accounts, which financial planners say are a good way to manage out-of-pocket medical costs. The Treasury Department said the changes can be implemented as early as the 2013 plan year.

For further information please click on the following link: https://www.irs.gov/pub/irs-drop/n-13-71.pdf

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