Q: What are the time and dollar limits for flexible spending arrangements (FSA) and FSA carryovers?
A: For 2024, the most that can be deferred to an FSA is $3,200 (a $150 increase from 2023). The amount of a 2024 FSA balance that can be carried over into 2025 is $640 (up from $610 in 2023). A carryover is only available if the FSA does not offer a grace period. The carryover amount can be used all year.
A grace period, on the other hand, is the amount of time in a new year that an employee can incur and be reimbursed for claims from the prior year’s balance. A grace period can be as long as 2 ½ months after the close of the plan year (usually the calendar year). So, if an employee has $1,000 left in the 2023 FSA, that employee could incur $1,000 of reimbursable expense prior to March 15, 2024, and spend that $1,000 if the FSA uses a grace period. An FSA cannot have both a grace period and a carryover.
And finally, most FSAs offer a run-out period. This is a period after the close of the plan year when employees can submit claims incurred in the prior year. There is no maximum run-out period set by the IRS, but most employers (or FSA administrators) will set a limit of 60 to 90 days. The run-out period only allows people to submit claims incurred in the prior year, unlike the grace period, which allows new claims incurred prior to March 15 to be reimbursed.
Originally Posted on UBA
Answers to the Question of the Week are provided by Kutak Rock LLP. Kutak Rock provides general compliance guidance through the UBA Compliance Help Desk, which does not constitute legal advice or create an attorney-client relationship. Please consult your legal advisor for specific legal advice.