DeFreitas & Minsky Accounting Blog

FSA Use It or Lose It Rule Has Been Changed

Posted by admin on Nov 5, 2013 10:32:50 AM

fsa use it or lose it

Last week, the US Treasury Department made an announcement that will benefit many working Americans: the FSA Use It or Lose It rule regarding the balance of flexible spending accounts (FSAs) will be loosening its grip on your funds. Up until now, employees who participate in health plans that use flexible spending accounts have had to use up the funds in their accounts before the year’s end, otherwise the money would be forfeited.

FSA Use It or Lose It Rule

The newly imposed rule change will enable employers to allow employees to roll over unused funds up to $500 to the following year’s balance. The Treasury reports that most often, forfeited funds are less than $500, but that’s still $500 that could come in handy at a later date. The only stipulation to the rule amendment, is that the FSA Use It or Lose It rule will only be suspended if the plan does not already have a grace period rule.

Flexible Spending Plan

Some flexible spending plans have grace periods, allowing participants to extend the time they have to use the funds in their accounts to the 15th day of the 3rd month after the plan’s year-end date (i.e., March 15th for plans that end on December 31st). People who are participating in this type of plan already have a bit of an advantage over those who aren’t, so the new provision in the FSA Use It or Lose It rule is basically leveling the two options to benefiting to the same extent.

Benefits

The benefit of a flexible spending account is that workers are able to use pre-tax dollars to cover a number of medical expenses, including doctor’s visits and prescription medication coverage. FSAs are sponsored by employers, which is why it will be up to the employers to allow funds to be rolled over. The change in the FSA Use It or Lose It rule is a result of many employees and employers objecting to the previous structure, because medical needs are often unpredictable, and having an expiration date on available funds creates pressure to waste money on unnecessary services at the year’s end.

There’s hope that even more than the estimated 14 million families who are already participating in healthcare FSAs will be interested in using the program now with this new initiative. Financial planners are tremendous advocates of FSAs because they are good systems to manage out-of-pocket expenses when it comes to medical care.

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Topics: Tax Laws, Financial Planning

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