Under a new rule issued by the Treasury Department, employers may now extend the deadline for reimbursement of health and dependent care expenses in employees' flexible spending accounts (FSAs) to up to 2½ months after the end of the plan year. Previously, employees were required to "use-or-lose" FSA funds by the end of the year. Under the old rules, any unspent funds at year's end would be forfeited.

The new rule is detailed in Notice 2005-42, linked below.

"The new rule will give workers with FSAs more time to pay for medical and dependent care expenses and will ease the year-end spending rush prompted by the prior rule," stated Treasury Secretary John Snow. "Putting people back in charge of their own care is one of the most important things we can do to strengthen our health care system. That's why President Bush has made it a priority to make it easier to access and pay for care through FSAs and to encourage consumer driven health care initiatives such as Health Savings Accounts."

FSAs allow employees to pays for uncovered or unreimbursed medical costs with pre-tax funds. FSAs are different than Health Savings Accounts (HSAs), which allow individuals and families with high-deductible health care plans to set pre-tax money aside for health expenses. Unlike an FSA, which must be spent within a certain period of time, HSAs can be rolled over from one year to the next.

Links

• Text of Notice 2005-42
• U.S. Department of the Treasury
  • Internal Revenue Service