In the recently released Notice 2013-71, the Internal Revenue Service (IRS) modified the rules for flexible spending accounts (FSAs). As previously applied, the rules did not allow for carryover of employee salary reduction contributions, otherwise known as the “use-or-lose” rule. The Notice permits cafeteria plans to be amended to allow for a carryover of up to $500 remaining at plan year end into the next plan year to pay or reimburse plan participants for qualified medical expenses, provided that certain requirements are met. The Notice also clarifies the scope of transition relief that allows for greater flexibility for individuals who desire changes in salary reduction elections for accident and health plans for non-cafeteria plan years beginning in 2013. These changes and clarifications were prompted by questions that arose under the Affordable Care Act (ACA).
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