In this edition: The $500 Health FSA Carryover: Details to Consider
Distributed November 25, 2013 |
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The $500 Health FSA Carryover: Details to Consider | |||||||||||||||||||||||||||||||||||||||||||||
CONEXIS applauds the decision to modify the longstanding "use-it-or-lose-it" rule that was announced recently in IRS Notice 2013-71. We believe this change will spur consumers to enroll in FSAs in future plan years – especially those who have been wary about losing money in the past. And with this change, employers now have even more plan options to consider. If you currently have an FSA in your employee benefits package, please review the details below before deciding if the carryover option fits into your FSA plan design. | |||||||||||||||||||||||||||||||||||||||||||||
Health FSA Carryover Rules | |||||||||||||||||||||||||||||||||||||||||||||
Per IRS guidance, employers are permitted (but not required) to amend their health FSA plans to allow their participants to carry over up to $500 of unused funds into the following plan year. However, health FSA plans may not include both a grace period and the $500 carryover – employers must make that choice and decide whether to include either of these plan features. | |||||||||||||||||||||||||||||||||||||||||||||
The $500 carryover of unused funds does not count toward the maximum amount of salary reduction contributions that the employee may elect. In addition, the guidance did not change the maximum amount of employee salary reduction contributions, which continues to be $2,500 per plan year(this amount may be indexed for inflation in the future) Plus, the modification to the use-it or lose-it rule does not impact dependent care FSAs. Other details are outlined below. | |||||||||||||||||||||||||||||||||||||||||||||
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Plan Amendments | |||||||||||||||||||||||||||||||||||||||||||||
Employers must amend their cafeteria plan documents so the carryover provision is adopted on or before the last day of the plan year from which the carryover is applied. The amendment may be retroactively applied to the first day of that plan year (including the current plan year) if the employer complies with all Notice 2013-71 regulations and informs plan participants of the plan changes. | |||||||||||||||||||||||||||||||||||||||||||||
For additional details related to this guidance, please review the full Notice text that's available on the IRS website. | |||||||||||||||||||||||||||||||||||||||||||||
Please note: This communication is not intended to be nor should it be construed by any third party recipient as legal advice. Before making any changes to your cafeteria plan, please discuss these issues with qualified tax or legal counsel. | |||||||||||||||||||||||||||||||||||||||||||||
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