If you have a Flexible Spending Account (FSA) to cover medical and dental expenses throughout the year, you know how close it gets at the end of the year to LOSING some of your funds. It used to not be that big of a deal in the days when IRS allowed account holders to spend these untaxed dollars on over the counter medications and things like bandages, etc. If you got to December and had a little money left over, you could just hit up the local drug store or Walmart and go crazy.
..For whatever reasons, a few years ago the IRS decided that over the counter drugs and other more miscellaneous medical items could no longer be purchased with FSA funds. And us account holders had to either: plan a lot better when designating an amount of our pay to Flex Spending, get a little more creative with the use of the funds remaining at the end of the year or simply throw cash away.
Being a vision-impaired lil lady, any funds I have left over by mid-late December, I usually exhaust on (disposable) contact lenses. Can never have too many.
But it now seems that all these end of the year tricks are no longer needed with the IRS' new rule to allow up to $500 to be rolled over from one year to the next.
From Life Health Pro:
The Internal Revenue Service (IRS) has decided to let holders of health flexible spending arrangements (FSA) roll over up to $500 in account balance from one year to the next without worrying about the infamous "use-it-or-lose-it" rule."
Officials at the IRS, an arm of the U.S. Treasury Department, have discussed the change in IRS Notice 2013-71, and they also talk in the notice about how they will make the change available to workers at employers with non-calendar plan years. The change takes effect immediately.
IRS officials said they believe a $500 rollover cap is appropriate because most FSA forfeitures are for less than $500.