New FSA Rule will Help Prevent Loss of Savings

fsa rule change

The U.S. Treasury and the Internal Revenue Service passed down a ruling this past week that will help alleviate the mad rush at the end of year to use money set aside for qualified medical expenses in Flexible Savings Arrangements (FSA) rather than losing the pre-tax savings. This ruling is great news for the approximately 14 million families enrolled in FSA programs offered by their employers. They will now be able to carry over $500 of any remaining savings to the following year instead of losing it back to their employer.

In the past, employers have been able to offer a two and a half month extension as part of their program. They will now have the option to offer either the extension or the $500 carry over. They may not offer both and are not required to offer either. Ask your plan administrator if you don't know whether the extension is part of your current program.

According to the Treasury Department this change was requested by both employees and employers. That's understandable since it doesn't make much sense for an employer to offer the benefit of using pre-tax dollars to pay for medical expenses just to have the benefit lost.

Covered expenses typically include eligible out of pocket medical expenses that aren't covered by any other program or policy. These expenses can include deductibles, copays, and coinsurance. Check with your health plan administrator to verify which expenses are covered and whether an extension or carryover is offered under the plan.