Understanding U.S. Health FSA Carryover

This topic provides an overview of US Health Flexible Spending Accounts (FSA) carryover.

Participants in health benefit plans (Plan Type 60) can carry over up to $500 from their FSA from year to year.

A health FSA is treated as a qualified benefit, provided that the $125 cafeteria plan limits each employee’s salary reduction contributions to the health FSA to not more than $2,500 per taxable year. A participant can submit a claim for reimbursement of expenses for qualified benefits incurred during the plan year, during the run out period immediately following the end of a plan year. Additionally, a grace period rule allows an employee to use amounts remaining from the previous year (including amounts remaining in a health FSA) to pay expenses incurred for certain qualified benefits during the period of up to two months and 15 days immediately following the end of the plan year.

PeopleSoft HR Manage Base Benefits permits the use of up to $500 of unused amounts in a health FSA in the immediately following plan year. The carryover of up to $500 may be used to pay or reimburse medical expenses under the health FSA incurred during the entire plan year to which it is carried over, and thus save the unused amount from being forfeited at the end of the plan year. The carryover of up to $500 does not affect the $2,500 salary reduction limit applicable to each plan year. Although the maximum unused amount that can be carried over in any plan year is $500, plan sponsors can specify a lower amount as the permissible maximum, or not permit any carryover at all.

Plan sponsors have the option to allow employees a grace period after the end of the plan year. However, a health FSA cannot have both a carryover and a grace period at the same time. It can have only one of these options, or none.