There are a number of reasons for employees to be optimistic that they’ll longer have to forfeit leftover FSA funds at the end of the plan year or grace period.
First, the House Ways and Means Committee recently passed the Medical FSA Improvement Act of 2011 by a 23-6 vote.
The bill would amend the “use-it-lose-it” rule that currently governs flex spending accounts and allows employees to take out up to $500 in taxable cash at the end of the plan year or the plan’s grace period. The withdrawal would need to be made within seven months of the end of the plan year.
But even if this legislation doesn’t go into effect, there’s still hope for an end to the unpopular FSA rule. IRS said it would consider “modifying” the use-it-or-lose-it rule.
Why is IRS suddenly considering a change to a rule that’s been in place for 28 years? The healthcare reform law’s $2,500 limit on FSA contributions, which starts in 2013, would hamper workers’ ability to set aside large amounts of money into an FSA.