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fsaFor those of you that have never contributed to your FSA in the past, because you were afraid of the dreaded “use it or lose it” provision, there is great news for you in 2014.

On October 31, 2013, the United States Treasury Department and Internal Revenue Service (“IRS”) issued a notice and fact sheet which announced changes to Flexible Spending Account (“FSA”) rules.   FSAs are health benefit plans employers can sponsor which allow employees to be reimbursed on a tax favor basis for qualifying medical expenses that are not covered by the employer’s group health plan.   Employers offering FSAs that do not include a grace period now have the option of allowing employees to roll over  (not forfeit) up to $500 in unused FSA funds at the end of the 2014 plan year.

The notice can be found at Treasury Department’s website at the following link:

http://www.treasury.gov/press-center/press-releases/Documents/103113FSA%20Fact%20Sheet.pdf.

The notice relaxes the FSA’s traditional “use-it-or-lose-it” rule that required employees to use all of the monies in their FSA account by the end of the year or forfeit the unused amounts.  The notice states that employers may allow their employee to use up to $500 of unused FSA monies in the next year instead of forfeiting the monies.

The Notice states that employers have a choice.  They can either allow employees to have a carryover  of up to $500 or allow their employees a grace period of up to 2 ½ months.  Health FSA plans, however,  cannot have both a grace period and a carryover. While employers may offer a grace-period or carryover to their employees participating in health FSA, they are not required to do either. The roll-over gives 1st time FSA participants to start with $500 dollars in 2014 with no chance of losing anything with the roll-over option.