Some Flexible Spending Account Plans (FSAs) may include a grace period after the end of a plan year during which participants may incur claims to be reimbursed from prior year contributions. This grace period may last up to 2-1/2 months after the close of the plan year. For calendar year plans, the grace period expires March 15.
A grace period provides an exception to the IRS-imposed use it or lose it rule. It offers FSA participants the ability to reduce forfeitures and be reimbursed for expenses incurred after the end of a plan year.
As March 15 is quickly approaching, employers with grace periods incorporated into their calendar year FSAs may wish to remind employees to use up their FSA balances.