The Treasury Department and the Internal Revenue Service have loosened the “use it or lose it” rule for flexible spending arrangements for health care, allowing participants in health benefit plans to carry over up to $500 from their FSA from year to year.
The goal is to make health FSAs more consumer-friendly and provide added flexibility. As part of the Affordable Care Act, the federal government limited the amount of money that could be put into an FSA to $2,500 a year, and the new rule would encourage a greater number of workers, particularly low- and moderate-income taxpayers, to take advantage of FSAs without worrying that they will lose the money they put into the accounts.
However, it will be up to the employer to decide whether or not to offer this option to employees. Most employers have traditionally been able to hold onto any money left by employees in their FSA accounts. Treasury Secretary Jacob J. Lew stated: “Across the administration, we are always looking for ways to provide added flexibility and commonsense solutions to how people pay for their health care. Today’s announcement is a step forward for hardworking Americans who wisely plan for health care expenses for the coming year.”
This action comes in response to public comments requested by the Treasury Department and the IRS. An overwhelming majority of feedback from individuals, employers and others asked that the use-or-lose rule for health FSAs be modified. Read more