Health care Flexible Spending Accounts (FSAs) allow employees to redirect pretax income to an employer-sponsored benefit plan that pays, or reimburses them for, qualified medical expenses not covered by health 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 (SPDs) to reflect the $2,500 limit (or a lower one, if they wish) by December 31, 2014.
Allowing a $500 FSA Rollover – FSA Plan Amendment
While you’re making those amendments, you may want to consider another amendment: allowing a $500 rollover.
Generally, an employee loses any FSA amount (referred to as “use it or lose it”) that hasn’t been used by the plan’s year-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.
Eliminating the 75-Day Grace Period to Permit Rollover
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.
Do you have questions about amending your FSA plan, or adding FSAs to your employee benefits plan? Then contact John Troyer at 216-831-7171 or jtroyer@cp-advisors.com. You can also leave us your contact information here, and we will contact you as soon as possible. We’d be pleased to answer these and other questions related to taxes and employer-sponsored benefit plans.
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