For employees that may hesitate to contribute to their flexible spending account because of the use-it-or-lose-it rule, they may find the recent IRS notice that addresses this issue a welcome solution. Employers now have the option of permitting employees to carryover up to $500 in their FSA to the next year and still contribute the full $2,500 in the current year to their plan. The prior rule required that unused benefits or contributions be forfeited at the end of the year. In addition, prior rules allowed employers to give their employees a grace period of up to 2 ½ months to use the remaining amounts from the previous year. This new provision gives employers the option of allowing the grace period or the $500 carryover, but not both.


For further details watch this short video provided by the IRS on the subject. Flexible Spending Arrangement Carryover Provision