Flexible Spending Accounts (FSAs) are employer-established benefit plans that allow employees to set aside pre-tax dollars for eligible healthcare expenses. Understanding the carryover rules is essential for maximizing the benefits of an FSA and avoiding forfeiture of unused funds at the end of the plan year.
FSA Carryover Limit
The IRS permits a carryover of up to $610 (as of 2023) from one plan year to the next. This means that if you do not use all your FSA funds by the end of the plan year, you can carry over a maximum of $610 into the following year.
Grace Period Option
Alternatively, some employers offer a grace period of up to 2.5 months after the plan year ends. During this period, you can use remaining FSA funds for eligible expenses incurred during the grace period. Employers can choose to offer either the carryover option or the grace period, but not both.
Important Considerations
- Unused funds exceeding the carryover limit are forfeited.
- Check your employer’s specific FSA plan details for options available.
- Plan expenses carefully to maximize your FSA benefits within the rules.
- Keep track of your FSA balance throughout the year.