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House kills FSA 'use-or-lose' rule

Despite a White House veto threat, the House on Thursday approved legislation that would amend a 28-year-old rule requiring flexible spending account users to forfeit their unused balances. The bill also lifts restrictions on using FSAs and health savings accounts for over-the-counter drugs.

By Jenny Ivy | Updated on June 07, 2012
The House of Representatives approved a measure to amend the FSA "use-it-or-lose-it" provision (photo:freedigitalphoto.net)

Despite a White House veto threat, the House on Thursday approved legislation that would amend a 28-year-old rule requiring flexible spending account users to forfeit their unused balances. The bill also lifts restrictions on using FSAs and health savings accounts for over-the-counter drugs.

Under the measure, employers can allow employees to withdraw taxable money up to $500 that’s sitting in unused FSA balances at the end of the plan year or at the end of a grace period. The law also overturns a health reform provision that prohibits FSA and HSA users from getting reimbursement for OTC drugs without a prescription. Distributions for drugs without a prescription face a 20 percent federal tax.

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