More Employers Take Advantage of FSA Carryover Provision

Almost a year and a half after the IRS opened the door to flexible spending account carryovers, 60% of employers report they have modified or are planning to revise their FSA plans to take advantage of the added flexibility. Employees no longer have to be concerned that they will lose their flexible spending balance if unused by the end of the plan year. The use-it-or-lose-it rule is no more. Employees can carry up to $500 of their unused Flexible Spending Accounts (FSAs) balances to the next year.

The carryover rule means employees don’t have to rush to spend what’s left in their accounts by the end of the year. Previously the use-it-or-lose-it rule had been a major setback to employee participation in FSAs. Since that rule has been abolished, the enrollment in FSAs has risen. There has been a double-digit percentage jump in enrollment in FSA plans that adopted the carryover provision for 2015 plan years. With this provision in effect there’s really no reason for eligible employees not to enroll and contribute to an FSA. All of the contributions are tax free and the employee’s full election is available on the first day of the plan year.

Flexible Spending Accounts (FSAs) have always been a great way for employees to budget for out-of-pocket healthcare expenses. They provide tax savings to both employees and employers. Besides the rollover rule another option that’s existing is the two and a half month grace period allowance. Employers can offer the grace period or the rollover option, but not both. Employees are at less risk of forfeiting their unused funds. The stress to choose the “right” election amount has now been alleviated. Along with easing the stress of choosing the right amount, this change will eliminate wasteful spending that normally takes place at the end of the year when employees rush to spend their remaining FSA dollars. Now everyone has more control and flexibility to manage their out-of-pocket health care expenses. The carryover provision is becoming the standard design for FSAs and should provide increased participation in next year’s FSA plan, greater employer savings from reduced payroll taxes (due to increase in employee FSA contributions) and increased employee satisfaction with the benefit offering; thus creating a happier, more productive workplace.

Paypro Corporation can assist you with easily implementing an FSA solution for your organization. With Paypro’s FSA Benefits Solution, you can count on seamless data integration, smart card technology, savings, and self-service. Contact a Paypro Benefits Specialist today to learn more.