A Change to Flexible Spend Accounts

At the end of October, the Treasury Department and the Internal Revenue Services announced a change to the 29-year-old rule that requires participants of flexible spending accounts to use their balances or forfeit the balance at the end of the year. The much-needed change is a huge step forward for hard-working Americans who use the money to pay for health care expenses throughout the year.

The modification to the ‘use-it or lose-it’ rule now allows participants to rollover up to $500 at the end of each year. The Treasury Department predicts that this modification will cut back on wasteful spending at the end of each year. For many people, the rollover option will be very helpful because the accuracy of what goes into the account will not have to be so precise, they will have some flexibility.

Employers will be given an option at the end of the year. Right now, they have the option of giving flexible account participants a 2 ½ month grace period for their account. They will then lose all the money at the end of the 2 ½ months. The other option is the $500 rollover. The rollover does not have a limit on the time, and can be carried over each year as necessary.

There are a few critics of the new plan that include people who would like to see the entire balance rollover instead of just $500, but the overall response to the new proposal is surprise and pleasure. The Treasury Department and IRS are moving in the right direction, and many people are welcoming the change.

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IRS Modify Flexible Spending Accounts

Millions of Americans use flexible spending accounts (FSA) to pay for their healthcare. Flexible spending accounts have been around for over thirty years, and the ‘use it or lose it’ rule has left users scrambling at the end of the year to spend all the left over money remaining in their account. At the end of October, the IRS announced that they are going to be more flexible with the FSAs. The modification allows employees to carry over up to $500 in unused account balances. This will have many Americans breathing a sigh of relief in the last few months of this year.

The IRS and the Department of the Treasury made the decision to allow rollover for FSA accounts to cut back on wasteful spending. This decision came more than a year after the Treasury and IRS announced plans to change the 29-year-old rule that forces participants to use their balance or forfeit the unused balance. The current rule also offers the employer the choice to extend a 2½-month grace period. At the end of the grace period the participant would then lose the unused portion of the savings.

With the modified rule, the employers will have two options, the $500 rollover or the 2½-month grace period. Both are intended to reduce the amount of wasteful spending incurred with the end of the year. The only stipulations, the employer must choose either the rollover option or the grace period. Millions welcome the great news of the change to the ‘use it or lose it’ rule. The Treasury Department estimated that 14 million families will now participate in health care FSA given the changes in policy.

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