No more rushing to buy a spare pair of prescription glasses to use up your flexible spending account (FSA) before the year ends.
The Treasury Department is letting employers give their workers a break by allowing them to roll over up to $500 from their special accounts into the next year.
The accounts, which each year let you set aside up to $2,500 in before-tax dollars to pay for health care expenses, can save hundreds of dollars in taxes. The catch has always been the “use it or lose it” provision – spend all of the money set aside each year or you forfeit it. (In some circumstances there can be a two-and-a-half-month grace period.)
Of the old regulation, a senior Treasury official said, “In a world where we’re trying to cut down on the amount we’re spending on health care and be more efficient, here’s an area where we have a rule that looks like we’re encouraging wasteful spending.”
Starting this year, employees can roll $500 of unspent FSA funds into the following year. The new rule aims to cut down on wasteful year-end spending and alleviate some of the stress of trying to predict exactly how much to set aside.
Fourteen million families use the FSA accounts. It will be up to employers to decide whether to offer the rollovers or stick with the current rule allowing a two-and-a-half month grace period – or do neither. The grace period is shorter but doesn’t have the $500 cap.
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