Notice 2013-71 – Internal Revenue Code Section 125 Cafeteria Plan Changes – "Use-Or-Lose" Rule Modified And $500 Carryovers Added

Health Flexible Spending Accounts (FSAs) under Internal Revenue Code Section 125 generally permit participating employees to make pre-tax contributions to an account from which certain medical benefits may be reimbursed. Participants in FSAs elect their pre-tax contributions before the beginning of the plan year, and the so-called "use-or-lose" rule requires any contributions not used to be forfeited. Notice 2005-42 partly mitigated the forfeiture rule by allowing a plan to provide for reimbursement of certain qualifying medical expenses incurred during a grace period of two and a half months after the end of the plan year. Contributions not used during the grace period would be forfeited.