Health care Flexible Spending Accounts (FSAs) allow employees to redirect pretax income to an employer-sponsored plan that pays, or reimburses them for, qualified medical expenses not covered by insurance. A maximum employee contribution limit of $2,500 went into effect in 2013. (Employers can set a lower limit, however, and there will continue to be no limit on employer contributions to FSAs.)
Employers that haven’t yet done so must amend their plans and summary plan descriptions to reflect the $2,500 limit (or a lower one, if they wish) by December 31, 2014.
While you’re making those amendments, you may want to consider another amendment: allowing a $500 rollover.
Generally, an employee loses any FSA amount that hasn’t been used by the plan year’s end. But last year the IRS issued guidance permitting employers to amend their FSA plans to allow up to $500 to be rolled over to the next year. However, if your plan was previously amended to allow a 2½-month grace period for incurring expenses to use up the previous year’s contribution, you cannot add the rollover provision unless you eliminate the grace period provision.
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The IRS recently announced a new carryover exception to the longstanding "use it or lose it" rule for healthcare flexible spending account (FSA)…