Q.- Our health flexible spending account plan allows participants who don’t use their full prior year balance to carry over up to $500 to use in the next plan year. I’ve been told that if we have this rule, we can’t allow people to incur claims up to 2-1/2 months after the end of the plan year (which we used to do). Is this correct?
A.- Yes. A health flexible spending account plan may have a carryover feature or a grace period feature, but not both. The carryover allows participants to use up to $500 of unused health FSA contributions in the next plan year. The grace period allows participants to incur expenses for reimbursement from the prior plan year up to 2-1/2 months after the end of the actual plan year.
