“Americans who use flexible spending accounts (FSAs) for healthcare costs may now be able to carry up to $500 of expiring money into the next year, the U.S. Treasury said on Thursday.
For nearly 30 years, about 14 million families with FSAs faced a “use it or lose it” deadline of December 31 when the money in the account would expire.
Accountholders flush with cash at the end of the year would often scramble to spend their fund balance frivolously.
An FSA allows individuals to set aside as much as $2,500 a year in pretax income for healthcare costs. The money can be used for items like dentistry, eyeglasses and orthodonture.
In 2005, the Internal Revenue Service began allowing companies to offer their workers a 2.5 month grace period through mid-March during which they could use up any money that was left over. Now, an employer that sponsors an FSA can choose, as an alternative to that grace period, to allow its employees to carry over up to $500 to use during the entire following year.
“Today’s announcement is a step forward for hardworking Americans who wisely plan for health care expenses for the coming year,” Treasury Secretary Jack Lew said in a statement.
The Treasury Department said that public comments it solicited overwhelmingly called for the rollover flexibility. The comments pointed to the difficulty for employees of predicting future needs for medical expenditures, Treasury said.”