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The Wagner Law Group Description 

The Wagner Law Group, A Professional Corporation, is a nationally recognized ERISA & employee benefits, estate planning, employment, labor & human resources practice. 

 

Established in 1996, The Wagner Law Group has 23 attorneys engaged exclusively in employee benefits, estate planning and employment law. Seven of our attorneys are AV rated by Martindale-Hubbell as having very high to preeminent legal abilities and ethical standards. The firm is among the largest ERISA boutiques in the country. Our practice is national in scope, with clients in more than 40 states and several foreign countries.

 

 

Contact Info

The Wagner Law Group

 

  Integrity | Excellence

  

Massachusetts Office 

Tel: (617) 357-5200 

Fax: (617) 357-5250 

99 Summer Street 

13th Floor

Boston, MA 02110


Florida Office 

Tel: (561) 293-3590
Fax: (561) 293-3591
7108 Fairway Drive
Suite 125
Palm Beach Gardens, FL 33418

   

San Francisco Office

Tel: (415) 625-0002

Fax: (415) 358-8300

315 Montgomery Street

Suite 904

San Francisco, CA 94104

 

www.wagnerlawgroup.com

 

 

November 7, 2013

 

 State and Federal Law Alert

 

IRS Modifies "Use-it-or-Lose-it" Rule for Health Flexible Spending Accounts

 

The IRS has issued Notice 2013-71 which modifies the longstanding "use-it-or-lose-it" rule for health flexible spending accounts ("FSAs"). Under this guidance, employers may allow health FSA plan participants to carry over up to $500 of their unused account balances from one plan year to the next.

 

Health FSA plan participants are subject to the use-it-or-lose-it rule, which originally required any unused health FSA account balances remaining at the end of the plan year to be forfeited. The IRS implemented the use-it-or-lose-it rule to prevent high-income employees from using health FSAs as vehicles for deferred compensation.

 

To mitigate the burden of the use-it-or-lose-it rule, the IRS subsequently created a "grace period" rule for health FSAs. Under the grace period rule, employers may allow health FSA plan participants a two and one-half month grace period during which amounts unused at the end of a plan year may be used to pay qualified FSA expenses incurred during the first two and one half months of the following plan year. While the IRS has not changed the grace period rule, Notice 2013-71 states that a health FSA plan may provide either the grace period or the $500 carryover option, but not both.

 

PPACA, which was enacted in 2010, capped health FSA salary reduction contributions at $2,500 per year. The IRS has confirmed that the $500 carryover does not affect the $2,500 salary reduction limit.

 

Under the Notice, the maximum unused amount permitted to be carried over in any plan year is $500, but a plan may specify a lower amount as the permissible maximum, and the plan sponsor has the option of not permitting any carryover.

 

To use the new carryover option, employers must amend their health FSA plans to set forth carryover provisions. Such amendments must be made to health FSA plans on or before the last day of the plan year from which amounts may be carried over. The amendment may be retroactive to the first day of the plan year. Health FSA plans that are being amended to provide for carryovers must eliminate any previously permitted grace period. Employers that wish to amend their health FSA plan to provide the carryover options are advised to do so under the guidance of qualified employee benefits counsel.

 

The carryover provision may be adopted for plan years beginning on or after January 1, 2013.

 

Notice 2013-71 can be accessed at: http://www.irs.gov/pub/irs-drop/n-13-71.pdf

  

 

This Newsletter is protected by copyright. Material appearing herein may be reproduced with appropriate credit.

  

Pursuant to Internal Revenue Service Circular 230, we hereby inform you that any advice set forth herein with respect to US federal tax issues is not intended or written by The Wagner Law Group to be used and cannot be used, by you or any taxpayer, for the purpose of avoiding penalties that may be imposed on you or any other person under the Internal Revenue Code.

 

This Newsletter is provided for information purposes by The Wagner Law Group to clients and others who may be interested in the subject matter, and may not be relied upon as specific legal advice.  This material is not to be construed as legal advice or legal opinions on specific facts. Under the Rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.