Pillsbury Winthrop Shaw Pittman

IRS relaxes use-or-lose rule for health FSAs

On 31 October 2013, the Internal Revenue Service (IRS) issued guidance relaxing the use-or-lose rule applicable to health FSAs under employers’ cafeteria plans. Now an employer may amend its cafeteria plan to permit plan participants with unused health FSA balances remaining at the end of a plan year to carry over up to $500 (£310) to reimburse qualified medical expenses incurred in the next plan year.

Employers with calendar-year plans that want to adopt this carry-over provision for unused health FSA balances remaining at the end of 2013 will need to act quickly. Suggested steps for evaluating and implementing the new rules are provided below. Also, the notice clarifies the scope of IRS regulations issued earlier this year permitting mid-year election changes under cafeteria plans with non-calendar year plan years…

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