Gregory Korte, USA TODAY
WASHINGTON -- The Internal Revenue Service is changing the rules on flexible health spending accounts to allow taxpayers to carry over $500 at the end of the year.
The new rule ends the 30-year-old use-it-or-lose-it policy, which forced taxpayers to forfeit whatever unspent amount they had set aside for medical expenses at the end of the year.
Treasury Secretary Jacob Lew called the rule change "a step forward for hardworking Americans who wisely plan for health care expenses for the coming year."
Flexible Spending Accounts are employer-sponsored accounts, up to $2,500, that allow employees to pay for out-of-pocket health expenses before taxes. But under a 30-year-old federal rule, employees lose whatever money they didn't spend by the end of the year.
Estimating out-of-pocket expenses a year ahead of time can be a hassle for taxpayers. The IRS formerly allowed taxpayers to go on an end-of-year spend-down by stocking up on aspirin, bandages, and other over-the-counter medications. But the Affordable Care Act disqualified any purchase that didn't have a doctor's prescription.
Some employers could begin allowing a carryover as early as this year. Many employers already allow a grace period at the end of the year to give employees more time to spend down their accounts, but the Treasury Department said an employer cannot allow both a carryover and a grace period.