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Regulation and Compliance > Federal Regulation > IRS

IRS Issues Guidelines for Health Care Flexible Spending Accounts

By Michael S. Fischer

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The Internal Revenue Service has issued guidelines on the $2,500 cap imposed on health care flexible spending accounts as part of the Patient Protection and Affordable Care Act.

The IRS also says it may modify the “use or lose” rule that says plan holders must forfeit unused FSA contributions at the end of the year.

The IRS guidelines, which had been expected, will provide some clarity for employers and for administrators of tax-advantaged accounts as they plan for the new rules to take effect next year, according to a statement by WageWorks, an administrator of tax-advantaged accounts.

The Patient Protection and Affordable Care Act became law on March 23, 2010.

Following are highlights from the new guidelines:

  • Guidance is effective for the plan year and not the taxpayer’s tax year
  • The $2,500 limit is effective for plan years starting on or after Jan. 1, 2013
  • Employer contributions do not count toward the limit
  • Any grace period amounts carried from one year to the next do not count toward the limit

In a brief telephone conversation with AdvisorOne, Jody Dietel, chief compliance officer at WageWorks, said the announcement of the guidelines was “great news, the guidelines are easy to understand.”

Dietel was especially pleased that the IRS and the Treasury Department had asked for comments about possible modifications to the use or lose rule. “We feel it has to go,” she said.

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