Do FSAs Have Grace Period and Rollover Options?
As companies and organizations prepare for the new year, there may still be questions regarding FSAs and what options employees may have to roll over or spend remaining funds before they are lost.
Read on to learn about what 2022 FSA options are available and what changes are in store for 2023.
Refresher: What Is an FSA?
Flexible spending accounts (FSAs), also called flexible savings arrangements, allow employees to set aside pre-tax dollars for healthcare, medical, and dependent care expenses. Employees may contribute up to $3,050 in 2023—a notable $200 increase from 2022.
While similar, the two funds differ in 3 significant ways:
While HSA funds roll over from year to year, only a limited amount of FSA funds can be carried over. All other FSA funds will expire at the end of the year. Depending on the plan, there may be a grace period.
Employers may contribute to both HSAs and FSAs—but the amount they can contribute to an FSA is based on what the employee contributes. The employer may contribute up to $500 regardless of what an employee contributes. However, beginning at $501, the employer may only make a dollar-for-dollar match on the employee's contribution.
You must be a member of a high-deductible health plan to enroll in an HSA. Such is not the case with an FSA.
What Qualifies as FSA Eligible?
The IRS defines eligibility as “qualified medical expenses.” For a product to be considered eligible, its primary function should be diagnosing, treating, curing, mitigating, or preventing medical conditions.
Health-related products geared toward hygiene and personal care concerns will not be included. This includes products such as gym memberships, toothpaste, and deodorant.
A few surprising items considered eligible are:
Service or Companion Animals
Sleep Deprivation Treatment
Menstrual Care Products
What Are the FSA Grace Period and Rollover Options?
Health and dependent care FSA funds allow for a grace period option. This option provides employees a two-and-a-half-month grace period to spend the remainder of their contributed funds. If employers adopt the grace period option, employees must use all available funds by March 15 or lose the funds.
Employees may also be able to carry funds over to the following year. This number is adjusted by the IRS annually according to inflation. For 2023 into 2024, it will be 20% of the $3,050 contribution limit, or $610. FSA users could only carry over up to $570 into the 2023 year.
One important note is that employers may opt for either the carryover option or the grace period option, but they may not choose both.
Another factor that has affected rollover for FSAs is the Consolidated Appropriations Act—signed into law in 2020. This act allowed employers sponsoring an FSA or dependent care benefit to let employees roll over all unused funds to the following year. It is important to remind employees that this act expired effective on December 31, 2022.
You can also stay informed, educated, and up-to-date with FSA rollover and other important topics by using BerniePortal’s comprehensive resources:
- BernieU—free online HR courses, approved for SHRM and HRCI recertification credit
BerniePortal Blog—a one-stop-shop for HR industry news
HR Glossary—featuring the most common HR terms, acronyms, and compliance
HR Guides—essential pillars covering an extensive list of comprehensive HR topics
HR Party of One—our popular YouTube series and podcast, covering emerging HR trends and enduring HR topics
As the cost of living continues to rise around the country, many employees—especially...