On Oct. 31, 2013, the Internal Revenue Service (IRS) released Notice 2013-71 (Notice) announcing a change to the Code Section 125 cafeteria plan use-it-or-lose-it rule for Health Flexible Spending Accounts (HFSA). The Notice allows up to $500 of unused amounts remaining in a participant’s HFSA account at the end of a plan year to be carried over for reimbursement of eligible medical expenses incurred during the following plan year. Read more.

Read Ceridian’s Capitol Hill Consultant Jim O’Connell’s blog post titled “FSA Carryover: At Long Last.”

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U.S. Treasury Modifies "Use It or Lose It" for FSAs

Nov 7, 2013

On Oct. 31, 2013, the Internal Revenue Service (IRS) released Notice 2013-71 (Notice) announcing a change to the Code Section 125 cafeteria plan use-it-or-lose-it rule for Health Flexible Spending Accounts (HFSA). The Notice allows up to $500 of unused amounts remaining in a participant’s HFSA account at the end of a plan year to be carried over for reimbursement of eligible medical expenses incurred during the following plan year.

This carryover option provides an alternative to the current 2 ½ month grace period rule, and employers have the option of amending their cafeteria plan to implement this new carryover rule or the grace period rule, but may not do both. Notice 2013-71 also clarifies that the carryover amount does not count against an employee’s maximum $2,500 contribution. This change is expected to simplify administration of HFSAs and increase the overall participation rate by reducing the likelihood of forfeitures by employees.

In addition, the notice clarifies transition relief available to employees covered by a non-calendar cafeteria plan year that begins in 2013. This relief was previously provided in proposed regulations governing the employer "shared responsibility" provisions of the ACA.