The U.S. Department of the Treasury and the IRS issued a notice modifying the “use-it or lose-it” rule for health flexible spending accounts. The key compliance changes to these rules are as follows:
- Effective in plan year 2014, employers that offer health FSAs will have the option of allowing participants to roll over up to $500 on unused funds at the end of the plan year;
- Effective immediately, employers that offer health FSAs that do not include a grace period will have the option of allowing employees to roll over up to $500 of unused funds at the end of the current 2013 plan years;
- The carryover option is an alternative to the grace period rule
What is the grace period?
A time period of up to 2 months and 15 days following the plan year in which unused salary reduction contributions to the health FSA are carried over into the grace period and will not count against the $2,500 limit for the subsequent plan year.
- Carryover of up to $500 does not affect the maximum amount of salary reduction contributions that the participant is permitted to make a health FSA ($2500 adjusted for inflation after 2012);
- To utilize the new carryover option, a plan offering a health FSA must be amended to set forth the carryover provisions. The amendment must be adopted on or before the last day of the plan year from which amounts may be carried over and may be effective retroactively to the first day of that plan year.
If you have questions about this rule, please contact your account manager or our office at 248-594-5550.
Sources:
Wage Works Compliance:http://getwageworks.com/Compliance/RegulatoryUpdates/Useitorloseit.html
IRS: http://www.irs.gov/pub/irs-drop/n-12-40.pdf
Modification to Use-It or Lose-It Rule http://learnwageworks.com/documents/useitorloseit.pdf
