Do you have funds in an employer provided Health Flexible Spending Arrangement (FSA)? If you worry about the long-standing rule of using up those funds or you'll lose them, then a new notice from the IRS could be helpful for you this year.
Millions of Americans take advantage of their employer's cafeteria plan that allows setting aside pre-tax dollars to be used to pay for qualified health care expenses. The problem with these plans has always been that if you do not use the funds in the account by the end of the year they would be forfeited. Some employers have established an allowable "grace period rule" that gives an additional two months and 15 days to use the funds before they are forfeited.
The maximum annual amount that can be set-aside in Health FSA's was recently set at $2,500 (indexed to inflation after 2012). This new limit is meant to help pay for the new Health Care Law. With this law change, the IRS agreed to reconsider the long-standing "use it or lose it" rules within FSA's.
Effective in 2013, employers can opt to change their Health FSA plans to allow up to $500 in unused funds to be carried over into the following year. If an employer opts to do this, they need to forgo any allowable grace period rules currently within their FSA plan.
Sound confusing? It can be. Until you receive definitive word your employer is changing their plan, it is best to use up your FSA funds prior to the end of your plan year.