Employers have mixed reactions to federal tax rules that permit employees to carry over unused money in their flexible spending accounts from year to year, a new survey has found.
Flexible spending accounts (FSAs) allow participants to pay their medical bills and dependent-care expenses with pretax dollars — but at the end of each year, participants forfeit any unspent money in their accounts. Critics have complained that the risk of forfeiting money has discouraged many individuals from participating in FSAs; those who do participate, add critics, frequently contribute far less than they eventually spend.
A better-known result of the "use it or lose it" rule is the year-end ritual in which FSA participants go on shopping sprees and buy goods and services that they otherwise wouldn't, simply to avoid leaving money in their accounts. In response, the Department of the Treasury and the Internal Revenue Service issued guidance in May permitting (but not requiring) companies to offer a two-and-a-half-month grace period at the beginning of each calendar year. During the grace period, employees could incur eligible expenses that could be paid from the previous year's FSA contributions.
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