By Jerry Geisel, Crain News Service
WASHINGTON (April 23, 2013) — Legislation introduced in the U.S. House of Representatives would end a decades-old Internal Revenue Service (IRS) rule that requires the forfeiture of unused healthcare flexible spending account (FSAs) contributions.
Under that 1984 rule, often called "use it or lose it," unused FSA contributions must be forfeited at the end of a plan year. Under a 2005 IRS modification, though, contributions that remain at the end of a plan year can be used to pay for expenses incurred during the first two and one-half months of the next plan year.
Under H.R. 1634, which was introduced last week by Rep. Charles Boustany, R-La., employers could return as taxable cash FSA contributions that remain in an account at the end of a plan year.
"This legislation provides a practical solution for American families by allowing them to keep more of their hard-earned money in their pockets during this tough economic climate," Rep. Boustany said in a statement.
A provision in the 2010 healthcare reform law that generally took effect at the start of this year caps at $2,500 the maximum annual contribution that employees can make to FSAs.
Previously, there was no cap, although employers typically limited FSA contributions to $4,000 to $5,000 a year.
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This report appeared on the website of Business Insurance magazine, a Chicago-based sister publication of Tire Business.