The amount to be spent and the timeframe to spend it depend on the plan rules the employer chooses. For Healthcare FSA users, it will be critical to understand if their employer adopted the recently amended “Use It or Lose It” rule. Under this rule change employers have the option of allowing participants to carry over up to $500 of unused funds at the end of the plan year in lieu of grace period. The grace period can be up to two and a half months when the FSA funds may still be used up.
Many employers are adopting the carryover immediately; so leftover funds from the 2013 plan year will still be available in 2014.
Employees are encouraged to check with their employer regarding any changes to their 2013 and 2014 plans. Based on their employer’s plans, they have the following options:
- If the employer adopted the carryover for the 2013 plan year, up to $500 of unused funds at the end of the current 2013 plan year will still be available in 2014. FSA users should look to spend down any balances in excess of $500.
- If the employer has not adopted the carryover for 2013, FSA users should look to spend their entire remaining balance before the end of the plan year, which may include a grace period lasting into 2014.
- If the employer adopts the carryover for the 2014 plan year, the employee may want to consider enrolling in an FSA if they have not done so previously, or adjust their contribution level, as $500 of unused funds will carry over into the 2015 year.
“Making a living is hard enough,” says Joe Jackson, CEO of WageWorks. “We want to remind account holders to check the rules of their FSA plan and use up their balances accordingly, to maximize their savings and make the most of their FSA program. The change to the “Use It or Lose It” rule for Healthcare FSAs is beneficial for employers and employees alike, and we are prepared to guide employers and employees through it.”
Flexible spending accounts are voluntary, account-based plans that enable millions of Americans to use pre-tax dollars to pay for eligible out-of-pocket healthcare expenses like prescription drugs, co-pays, and vision and dental costs.
The rule change does not apply to Dependent Care Flexible Spending Accounts, so employees still need to use up that balance before the end of the plan year, or the end of grace period, depending on their plan details.