"Use It or Lose It" Rules Modified for Health Flexible Spending Accounts

The IRS issued Notice 2013-71 modifying the "Use It or Lose It" rule for Health Flexible Spending Accounts. This modification allows for up to $500 of unused amounts remaining at the end of a plan year in a Health FSA to be carried forward to the following plan year. This modification applies to plan years that begin in 2013.

The $500 carryover does not affect the maximum amount of salary reduction contributions. The carryover option is an alternative to the grace period rule. The carryover provision does not apply to Dependent Care Flexible Spending Accounts.

This rule does not require an employer to change their current Health FSA plan. Plans may only apply one provision (carryover or grace period) per plan year and these provisions are optional. A run out period will continue to apply to give participants an opportunity to file claims.

A carryover provision may increase participation in the Health FSA as employees may feel less pressure in estimating their medical expenses.

Changes may be implemented as early as the 2014 plan year (plans will need to be amended on or before the last day of the plan year that begins in 2014). Please contact your Account Executive to discuss any questions or changes to your Health FSA plan. Amendments will be provided.