AARP Eye Center
A Tax Rule Washington Is Making Easier
By Tamara Lytle, November 5, 2013 03:51 PM
No more rushing to buy a spare pair of prescription glasses to use up your flexible spending account (FSA) before the year ends.
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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.
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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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