Taxpayers who utilize Flexible Spending Accounts (FSAs) are well aware of the ‘use-it-or-lose-it’ rule regarding expending pre-tax money set aside for medical expenses. Previously, any amounts unused by year-end are forfitted.
Under Internal Revenue Code Section 125(j) as added in the Affordable Care Act (also known as ‘Obamacare’), taxpayer are now eligible to roll-over up to $500 of unused funds to a following plan year. The roll-over does not affect the $2,500 contribution maximum in the subsequent year.
Sponsors (employers) must amend their plan to take into account the new elective changes.
Aaron’s Take: The end-of-year rush to spend FSA money will be much less stressful in 2013 and going forward, but don’t take it for granted that your employer has made the necessary changes. Be sure to ask!