Skip to content

Menu

Hunton Andrews Kurth LLP logo
HomeOur PracticeContact

Hunton Employment & Labor Perspectives

Analysis and Development in Employment & Labor Issues

Home IRS Modifies FSA “Use or Lose” Rule To Permit Carryovers

IRS Modifies FSA “Use or Lose” Rule To Permit Carryovers

By Hunton Andrews Kurth LLP on December 10, 2013
Posted in Employee Benefits

On October 31, 2013, the Internal Revenue Service issued Notice 2013-71, which modifies the “use or lose” rule for flexible spending accounts (FSAs) and permits employers to amend their section 125 “cafeteria” plans to allow employees to carry over up to $500 in unused FSA contributions to the next plan year.

Prior to the new guidance, FSA account balances remaining at the end of the plan year could not be carried over and generally had to be forfeited. Under 2005 IRS guidance, some employers have permitted employees to use their FSA contributions to pay qualified expenses incurred during a grace period of up to 2 ½ months following the end of the plan year. In addition, employers also typically employ a “run-out” period in the following year (or following the end of the grace period, if applicable) during which time employees can submit reimbursement claims for expenses incurred during the prior plan year (and any applicable grace period).

Under the new guidance, employers have the option to offer either a carryover of up to $500 or a grace period, but not both. Employers may impose a carryover limit of less than $500, but the same carryover limit must be applied to all employees. The carryover, which must be available to reimburse expenses incurred any time during the plan year to which it is carried over, does not affect in any way the annual $2,500 salary reduction limit.  As a result, employees could have up to $3,000 available annually for reimbursement under an FSA, as the amount carried over is determined after all prior year expenses have been reimbursed.

In general, employers have until the last day of the plan year from which amounts can be carried over in which to amend their cafeteria plans to add the carryover option. In addition, in recognition of the fact that the 2013 plan year will end soon for many cafeteria plans, employers may adopt a carryover provision for a plan year beginning in 2013 at any time by the last day of the plan year that begins in 2014 (e.g., for a calendar year plan, an amendment may be made as late as December 31, 2014 to permit carryover from the 2013 plan year to the 2014 plan year). An employer that currently offers a grace period and wants to change to a carryover must also amend its plan to eliminate the grace period no later than the end of the plan year from which amounts may be carried over.

However, in deciding whether to implement a carryover, employers who offer a high deductible health plan with health savings accounts (HSAs) should keep in mind that the carryover could affect the ability of employees enrolled in such an option to make contributions to their HSA (unless the FSA is converted to a “limited purpose” or post-deductible arrangement).  Since a carryover must be provided to all eligible employees, implementing one may not make sense in these circumstances unless the employer has (or is otherwise willing to put) in place a limited purpose or post-deductible HSA.

Tags: Cafeteria Plan, Employee Benefits, Flexible Spending Account, Health Care, Section 125, Use or Lose Rule
Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Related Posts
Dept of Labor Headquarters
DOL’S Final Rule Gives ERISA Fiduciaries Green Light to Consider ESG Factors When Selecting Investments
January 5, 2023
State of California Flag
California Enacts COVID-19 Supplemental Paid Sick Leave For 2022
February 10, 2022
Flags_Medium Califonia Flag
California’s COVID Right-to-Recall Law Unites Patchwork of Local Ordinances
May 3, 2021

Stay Connected

RSS LinkedIn YouTube Follow Us on Twitter
Subscribe

Topics

Archives

Blog Authors Show/Hide

  • Jessica N. Agostinho
  • Walter J. Andrews
  • Jayde M. Ashford
  • L. Scott Austin
  • Ian P. Band
  • Ryan M. Bates
  • Michele J. Beilke
  • Christy E. Bergstresser
  • Brian J. Bosworth
  • Alyson Brown
  • Jason P. Brown
  • M. Brett Burns
  • Scott W. Burton
  • Daniel J. Butler
  • Christopher J. Cunio
  • Kimberlee W. Dewitt
  • Steven J. DiBeneditto Jr.
  • Madalyn K. Doucet
  • Robert T. Dumbacher
  • Elizabeth England
  • Juan C. Enjamio
  • Karen Jennings Evans
  • Geoffrey B. Fehling
  • Ryan A. Glasgow
  • Sharon S. Goodwyn
  • Meredith Gregston
  • Blake E. Guerrero
  • Eileen Henderson
  • Rebekah K. Herman
  • J. Marshall Horton
  • Roland M. Juarez
  • Keenan Judge
  • Suzan Kern
  • Galit Knotz
  • Stephen P. Kopstein
  • Torsten M. Kracht
  • James J. La Rocca
  • Kurt G. Larkin
  • Jordan Latham
  • Tyler S. Laughinghouse
  • Crawford C. LeBouef
  • Michael S. Levine
  • Michelle S. Lewis
  • Jessica K. Little
  • Alan J. Marcuis
  • Lorelie S. Masters
  • Lukas Moffett
  • Reilly C. Moore
  • Steven A. Morphy
  • Michael J. Mueller
  • J. Drei Munar
  • David Mustone
  • Scott M. Nelson
  • Christopher M. Pardo
  • Michael A. Pearlson
  • Adriana A. Perez
  • Ryan P. Phair
  • Kurt A. Powell
  • Robert T. Quackenboss
  • D. Andrew Quigley
  • Michael Reed
  • Jennifer A. Reith
  • Amber M. Rogers
  • Alexis Zavala Romero
  • Adam J. Rosser
  • Elizabeth L. Sherwood
  • Cary D. Steklof
  • C. Randolph Sullivan
  • Veronica A. Torrejón
  • Julia Y. Trankiem
  • Kelly A. Ultis
  • Emily Burkhardt Vicente
  • Kevin J. White
  • Holly H. Williamson
  • Susan F. Wiltsie
  • JeeHyun Yoon

Recent Updates

  • CLE Webinar Invite – Don’t Get Lost In the Dark – Navigating Pay Transparency and Pay Equity Laws
  • Los Angeles County to Lift COVID-19 Emergency Proclamation and Orders
  • States Push Pay Reporting Requirements in Effort to Ensure Pay Equity
  • NLRB Seeks To Expand Jurisdiction Over Educational Institutions with Religious Affiliations
  • California Now Requires Bereavement Leave

Links & Resources

  • Video Series: Labor & Employment Quick Takes
  • Blockchain Legal Resource
  • Business Immigration Insights
  • C-Suite Compensation Center
  • Hunton Insurance Recovery Blog
  • Hunton Retail Law Resource
  • PipelineLaw
  • Privacy and Information Security Law Blog
  • The Nickel Report

Hunton Employment & Labor Perspectives

Attorney Advertising

Case results depend upon a variety of factors unique to each case. Case results do not guarantee or predict a similar result in any future case. Unless otherwise noted, attorneys not certified by the Texas Board of Legal Specialization.
RSS LinkedIn YouTube Follow Us on Twitter
Privacy NoticeDisclaimerCookies

About Our Practice Group

Our labor and employment team has been active for over 70 years representing employers in all matters related to the employer/employee relationship. We represent clients in all industries, but have particular experience in retail, hospitality, financial, energy and health care. We are national in practice and provide excellent, prompt, cost-effective, team-based service. We work with government agencies such as EEOC, OSHA and the OFCCP, and, where our clients already have represented employees, labor unions, to negotiate beneficial outcomes. However, we also litigate in federal and state courts throughout the nation. We handle single plaintiff cases under creative fee arrangements and are one of the few firms that successfully tries class and collective actions to juries under Title VII and the FLSA. We are also particularly adept at providing strategic labor advice, handling complex NLRB matters, corporate and election campaigns.

Copyright © 2023, Hunton Andrews Kurth LLP. All Rights Reserved.
Law blog design & platform by LexBlog LexBlog Logo