Walter & Shuffain, P.C.
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Many employers today provide their employees with the option to participate in flexible spending arrangement plans (FSAs). These plans allow workers to have pretax money deducted from their paychecks for qualified out-of-pocket healthcare expenses. If you are a participant in your company's plan or are thinking about participating next year, it is important to note a major change recently made by the IRS regarding the rules governing these types of accounts.
Under the former rules governing FSAs, money put into the plan by the employee was required to be used by December 31. This "use it or lose it" provision forced participants to forfeit funds that were not used by the end of the year to their employer. The new rules provide employers with the option of extending the December 31 deadline two and a half months, or to March 15 of the following year. This means that expenses incurred by the employee between December 31 and March 15 may be reimbursed from contributions that were unused at the end of the previous plan year, giving employees additional flexibility and helping to prevent forfeiture of unused funds. Employers must amend their plan documents by December 31 to adopt the two and a half month grace period for the current plan year.