The IRS now allows the employer to either offer a grace period, or allow funds to be rolled over to the following year.
- Under the grace period rule, a FSA plan can permit an employee to use amounts remaining from the previous year to pay expenses incurred for certain qualified benefits during the period of up to two and a half months into the following plan year.
- Or an FSA can allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be used toward qualified medical expenses incurred during the following plan year (rollover), provided that the plan does not also incorporate the grace period rule.
Having said this, it is the choice of the employer (NOT the employee) to offer either of these options. This IRS Document has more information. Also, the "use it or lose it" provision still applies if you voluntarily terminate (quit) your employment, or are terminated without cause (i.e., laid off).
My current employer does not offer either a grace period or rollover option. I plan to discuss the possibility of the company offering one of these options with human resources, sometime before open enrollment. After all, it is your own money (not your employer's); shouldn't you have the say on what to do with it?
Does your employer offer an FSA grace period, rollover, or nothing? I would be curious to know.
PFStock.com does not provide specific tax advice. If you have questions about FSAs and taxes, please contact a qualified tax advisor.