IRS MODIFIES FSA USE-IT-OR-LOSE-IT RULE

IRS MODIFIES FSA USE-IT-OR-LOSE-IT RULE

Health Flexible Spending Account (FSA) contributions left over at the end of the plan year are forfeited to the employer under the “use-it-or-lose-it rule,” although a plan can provide a grace period extending the period of incurring expenses for qualified benefits to the 15^th day of the third month after the end of the plan year (i.e., March 15^th for a calendar-year plan).  However, the IRS will allow employers, for the first time, to amend their Section 125 cafeteria plan to allow up to $500 of unused amounts remaining at the end of a plan year to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided the plan does not also have the grace period rule.