I recently coauthored a Client Alert, “IRS Chips Away at the FSA ‘Use-or-Lose’ Rule” with Jeffrey Lieberman, one of my colleagues in the Employee Benefits practice at Epstein Becker Green.
The following is an excerpt:
Under new guidance issued by the Treasury Department and Internal Revenue Service, Section 125 cafeteria plans can be, but are not required to be, amended to allow up to a maximum of $500 of unused amounts remaining at the end of a plan year in a participant’s health flexible spending account to be carried over to the next plan year and used to reimburse the plan participant for qualified medical expenses incurred during the immediately following plan year so long as the plan does not also use the grace period rule. An employer will have to choose which of the two rules, grace period or carry-over, it wishes to include in its cafeteria plan, although neither rule is required. This new guidance provides cafeteria plan design opportunities.
You can read the full Client Alert here.