If new law legislation introduced today becomes law, the days of the FSA "use it or lose it" rule could become a thing of the past.
The Medical Flexible Spending Account Improvement Act, introduced today by Senators Ben Cardin, D-Md., and Mike Enzi, R-Wyo., would allow consumers to pay taxes on and withdraw any remaining funds in their employer-sponsored FSAs. Rules require that any leftover balance in an FSA must be forfeited to the employer at the end of the plan year.
"It is time to modernize FSAs to eliminate this burdensome 'use it or lose it' rule," Cardin said when introducing the bill. "It is both fair and sound health policy to allow FSA participates to cash-out remaining funds at the end of the plan year rather than forfeiting the balance to their employer."
Recommended For You
The bill is the Senate counterpart to H.R. 1004, which was introduced with bipartisan support in March by Reps. Charles Boustany, R-La., and John Larson, D-Conn.
Proponents of the bill say the "use it or lose it" rule of FSAs is a deterrent for people considering FSAs, and changing the rule will ensure participants don't lose their hard-earned money.
Additionally, the bill's sponsors noted that the original reason for adopting the "use it or lose it" provision is no longer relevant. The IRS adopted the provision to prevent FSAs from being misused as tax shelters. But according to Cardin, "with the enactment of the Patient Protection and Affordable Care Act in 2010, annual contributions to FSAs will be capped at $2,500 beginning in 2013, which makes the 'use it or lose it' rule unnecessary."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
