The IRS recently announced a new carryover exception to the longstanding "use it or lose it" rule for healthcare flexible spending account (FSA) plans. Under the exception, any unused FSA balances of up to $500 at the end of a plan year can be carried over to the following year. Without such a carryover privilege, any unused balance is forfeited to the employer.
The Weaver newsletter article IRS Allows $500 Carryover for Unused Healthcare FSAs explains the new carryover privilege as well as necessary FSA background information.
- Healthcare FSA basics
- The new FSA carryover option
- How the carryover privilege works
- Deadlines for amendments to plans
- Catches to the new rule
The ability to carry over an unused balance is a big help for individuals who over-estimate their out-of-pocket medical expenses for the year. To use the carryover, however, an employer must amend its current FSA plan to offer the new privilege, or else the exception does not apply.
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