IRS Modifies “Use It Or Lose It” Rule For Health Flexible Spending Arrangements Under The Affordable Care Act

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Pressures of Use It Or Lose It

On October 31, 2013, the Internal Revenue Service issued Notice 2013-71 about the “Use It Or Lose It” Rule for health flexible spending arrangements under the Affordable Care Act.

The notice instituted significant changes that will affect the administration of cafeteria plans under section 125 of the Internal Revenue Code. Pontrelli, Timour & Associates offers a brief outline of these changes as a public service. If you need to know how the specific details affect your healthcare plans, please contact PT Benefits for help.

Use It Or Lose It Update

The main change is a modification of the regulations proposed under section 125 to add a limited exception to the “use it or lose it” rule for health flexible spending arrangements. Employers are permitted to amend plans that provide health flexible spending arrangements to permit up to $500 of unused credits to be carried over and applied towards the following plan year.

It is important to realize that the “use it or lose it” rule is not  completely eliminated. Any unused credit in excess of $500 will still be forfeited.

This new carryover is an alternative to the current “grace period” rule. As a result, a health FSA may not provide for both the new carryover and the current grace period. From a pragmatic perspective, if a carryover is to be provided at all, the choice is between (a) permitting a carryover of a limited amount (up to $500) that can be applied during the entire following year, or (b) permitting a potentially larger carryover that can only be applied against expenses incurred during a specific period of time (one month, two months, three months) that is designated as the grace period.

Use It Or Lose It Modifications

PT Benefits understands if all of these new rules and regulations sound like a sputtering of ancient Greek to you. As a businessman, you are focused on growing your business and not getting lost in a maze of such technical particulars.

If you contact Pontrelli, Timour & Associates with questions, we can provide you the support you need to make sure the “Use It Or Lose It” modifications are effectively applied to your business. To learn more about how PT Benefits can deliver premium health coverage and benefits packages to your employees and guide you as an employer through the maze of the Affordable Care Act, please call 866-782-9899 or fill out our handy contact form.

Raphy Timour

About 

Co-Founder at Pontrelli, Timour & Associates, Inc.

A California native of Pasadena, Raphy Timour began his career at Automatic Data Processing as an outside sales representative, achieving President Club status each and every year at ADP. Wanting to provide clients with a more customercentric approach, Raphy Timour started Pontrelli, Timour & Associates, Inc. in 2003 with his childhood friend Chris Pontrelli. Raphy Timour has a Health & Insurance License from the California Department of Insurance.

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