Previously, flexible spending accounts (FSA) were “use it or lose it.” You had to spend all the money in your FSA account each year or it would be lost. Additionally, if you were enrolled in a general purpose FSA you could not contribute to a health savings account (HSA). New IRS guidance allows a FSA enrollee to carryover $500 in unused contributions into the next year and explains how doing so will not disqualify use of a HSA.
The IRS provides 3 ways an enrollee can carryover:
-an employee in a general purpose FSA can carryover into a limited purpose FSA
-employers can design their general purpose FSA so unused amounts are automatically carried over the following year into limited purpose FSA
-employers can give employees the opportunity to decline or waive a carryover from the general purpose FSA
These options give employers flexibility to design the best FSA rollover plan for their employees.