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NEWS - IRS eases rules on Healthcare Flexible Spending Accounts

October 31, 2013 – Workers faced with forfeiting unused money in their flexible spending accounts for healthcare expenses may be getting some relief under a new federal rule.

The U.S. Treasury Department and Internal Revenue Service changed the use-it-or-lose-it rule for flexible spending arrangements, or FSAs, to allow account holders to carry over as much as $500 from one year to the next without penalty.

Many workers have been reluctant to put money into the plans for fear of losing whatever they don’t use, resulting in long-standing complaints about how the pretax FSAs work.

Typically, they must estimate before the year starts how much they might spend on healthcare, and employers regularly deduct money from their paychecks before taxes. Any amount left over at the end of the year would go back to the employers.

With less risk of such forfeitures now, experts predicted that more workers, particularly lower- and moderate-income employees, would take advantage of the deductions for everyday medical expenses, such as co-pays, over-the-counter drugs and other items not normally covered by health insurance.

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