WASHINGTON — Workers taking advantage of special tax-free accounts to pay out-of-pocket medical expenses soon could be allowed to carry over up to $500 from one year to the next.
For nearly 30 years, employees eligible to use the Flexible Spending Accounts had to forfeit any unspent money at the end of the year. A new rule will now permit employers to let plan participants roll over up to $500, the Treasury Department said.
Employers sponsoring the plans, however, are not required to offer the option. Some plan sponsors may be eligible to start letting workers carry over the money at the end of this year, Treasury said. Others may have to wait until next year.
"Today's announcement is a step forward for hardworking Americans who wisely plan for health care expenses for the coming year," Jacob Lew, the Treasury secretary, said in a statement.
Flexible spending accounts allow employees to contribute up to $2,500 a year from their pay, before taxes are deducted. The accounts can then be used to pay certain medical expenses not covered by insurance, including co-pays.
The Treasury says an estimated 14 million people use the accounts.
Employees generally decide how much to set aside in the accounts before the start of the year. Because it can be difficult to estimate medical expenses a year in advance, some people are discouraged from taking advantage of FSAs, knowing they could potentially lose money.
Some plans give workers up to 21/2 months at the start of the year to spend the money in the accounts. The new rule says plans can offer either a grace period or the $500 rollover, but not both.