Changes to the “Use It or Lose It” Rule for Health Flex Spending Arrangements (FSAs)
On Oct. 31, 2013, the Department of the Treasury and IRS issued Notice 2013-71, which provides information on a new $500 carryover option for employer-sponsored healthcare flexible spending arrangements.
The modification allows § 125 cafeteria plans to be amended to allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided that the plan does not also incorporate the grace period rule. This carryover of up to $500 does not count against or otherwise affect the indexed $2,500 salary reduction limit applicable to each plan year.
The amendments to the plan must be made by the employer and the same carryover limit must apply to all plan participants. The employer specifies the carryover limit in the plan amendment with the maximum being $500. Employers are encouraged to communicate with their plan administrator regarding any fees that will be charged for making amendments to their existing § 125 cafeteria plan.
Notice 2013-71 makes no changes to medical expenses qualifying for reimbursement under §125 plans.
The information provided is for informational purposes only and is not inclusive. Please consult your tax advisor for more information on how this affects you!