Millions of Americans take advantage of their employer’s cafeteria plan that allows setting aside pre-tax dollars to be used to pay for qualified health care expenses. These pretax dollars are set aside for medical expenditures not covered by insurance. The problem with these plans has always been that if you do not use the funds in the account by the end of the year they are forfeited. So as the year progresses, it’s important to know where your balance is so you have an opportunity to make the appropriate purchases by before the end of the year.
The maximum annual amount that can be set-aside in Health FSA’s is now set at $2,500. Old rules allowed this account level to be set by employers offering the benefit (usually $5,000). By reducing funds available for this benefit, the government is hoping it will help pay for the new health care law. With this law change, the IRS agreed to reconsider the long-standing “use it or lose it” rules within FSA’s.
Grace Period vs Carry-Over Option….Some employers have adopted a grace period of March 15th to use these funds in lieu of having to use the amount by December 31st. Effective in 2013, employers can opt to change their Health FSA plans to allow up to $500 in unused funds to be carried over into the following year. If an employer opts to do this, they need to forgo any allowable grace period rules currently within their FSA plan.
Sound confusing? It can be. Because the new ruling was announced late in 2013, many employers did not have time to adopt the carry over provision. So it may change for the 2015 year. Until you receive definitive word your employer is changing their plan, it is best to use up your FSA funds prior to the end of your plan year.