Flexible spending accounts (FSA) can be a useful tool to apply towards healthcare spending. With an FSA, money is taken out through regular payroll deductions on a pre-tax basis and set aside for health-related expenses like health insurance copays, vision and dental care or over-the-counter drug purchases. Up until recently, one major drawback of an FSA is the inability to roll over any amounts remaining into the next calendar year. Consequently, any unused amounts in an FSA were forfeited to the employer (thus, the use-or-lose rule for such flexible spending arrangements).
Last week, the U.S. Treasury Department and Internal Revenue Service announced that they will allow workers to carry over some unused money held in FSAs for healthcare expenses. As a result, balances of up to $500 remaining at the end of a plan year can be carried over into the following year.
It’s up to employers whether they make the change and when they take advantage of the new policy.