Flexible Spending Accounts: More Time to Spend

The U.S. Treasury announced last week that millions of workers who use flexible spending accounts (FSAs) to set aside pre-tax dollars for health-care expenses will have until two and one-half months to spend the set-aside funds. Previous rules required that funds deposited in an FSA be spent by the end of the plan year. Any unspent funds were lost.

The use it or lose it rule isn’t changing but savers are being given an additional 2½ months in which to spend it. If the plan year ends with the calendar year, spending can now continue until March 15. The change is intended to eliminate the end-of-year rush on services as savers try to spend the remaining balance in the FSA. It is still unclear whether the extension will accomplish that or just delay the rush until closer to the new deadline.

FSAs allow employees to pay for uncovered or unreimbursed medical expenses, including co-payments and prescription drugs, with pre-tax dollars. A similar plan allows employees to set aside funds for dependent care. Funds not spent during the period of either plan, now 14 ½ months, are forfeited. It will be left up to employers to adjust their plans to allow for the extended period.

"The new rule will give workers with FSAs more time to pay for medical and dependent care expenses and will ease the year-end spending rush prompted by the prior rule," stated Treasury Secretary John Snow. "Putting people back in charge of their own care is one of the most important things we can do to strengthen our health care system.”

Senator Chuck Grassley (R-IA), chairman of the Senate Finance Committee, has pressured the Treasury Department for months to make FSAs more attractive and useful to workers. Along with Senators Jim DeMint (R-SC) and Ken Salazar (D-CO), Senator Grassley supports legislation allowing up to $500 invested in an FSA to be carried over to the next year making FSAs easier for more people to use.

“Workers shouldn’t have to lose money,” Senator Grassley told the Des Moines Register.

You may like these other stories...

By Deanna C. White Millennials may be incredibly savvy when it comes to using technology to research nearly every decision they make, but when it comes to determining their financial habits, a new survey suggests they...
By Deanna C. White A survey by the American Institute of CPAs (AICPA) indicates that many American parents are still reluctant to engage their children in significant conversations about money, with only 13 percent of...
By Jason Bramwell The percentage of higher education leaders who  are "very concerned" about their ability to maintain current enrollment levels is on the rise, according to the second annual Higher...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.