Flexible spending accounts (FSAs) allow taxpayers to set
aside pre-tax dollars to pay for out-of-pocket medical expenses. The drawback
has been the fact that unused amounts each year are forfeited. Plans could
provide a 2½ month grace period to use up unspent set-asides.
Now a change announced by the IRS adds more flexibility to
these accounts. Plans can be modified by employers to allow up to $500 of
unused amounts to be carried over into the following year. Health FSAs cannot
have both the old 2½ month grace period and the $500 carryover; they can have
one or the other (or neither).
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