The Internal Revenue Service is giving taxpayers more time to use their pre-tax medical spending accounts.
New rules put an end to the 30-year old "use it or lose it" restrictions on health-care flexible spending arrangements, allowing taxpayers to carry over up to $500 of unused balances to the following year. Employees can contribute up to $2,500 a year into the tax-deferred accounts and then use the money to cover qualified out-of-pocket medical expenses. "Today's announcement is a step forward for hardworking Americans who wisely plan for health care expenses for the coming year," Treasury Secretary Jacob Lew said in a statement.
Before Thursday's change, plan participants would have to forfeit any cash they didn't use by the end of the year. Some employees may have been hesitant to use the accounts out of fear that they might overestimate their medical expenses for the year and have to lose those savings.
Some plan sponsors will let taxpayers take advantage of the carryover option as early as this year. Some employers have been giving their workers a grace period of up to 2 ½ months the following year to use the rest of the funds but going forward they will only be able to allow a carryover or a grace period, not both, the Treasury Department said on Thursday.
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