Flexible spending accounts have historically been less popular with Americans than health savings accounts
Flexible spending accounts have historically been less popular with Americans than health savings accounts, due to a “use it or lose it” provision that requires account holders to forfeit any unused balances at the end of their plan year. However, a new adjustment to FSAs that was announced in October by the Treasury Department and the IRS may change that.
The government agency recently modified the forfeiture rule, and will now allow individuals to carry over up to $500 of their remaining balances at the end of the plan year. The new tax lawis designed to generate greater interest in these tax-advantaged plans, allow workers to keep a greater portion of their balances, and reduce unnecessary medical spending at the end of the year, the Treasury Department said.
Existing rules also give employers the option of allowing employees a grace period that permits them to use amounts remaining unused at the end of a year to pay qualified FSA expenses incurred for up to two and a half months following year-end. While this rule will remain in place, plan participants may not employ both a carryover and a grace period. They must choose one or the other.
“Across the administration, we are always looking for ways to provide added flexibility and commonsense solutions to how people pay for their healthcare,” said Treasury Secretary Jacob Lew. “Today’s announcement is a step forward for hardworking Americans who wisely plan for health care expenses for the coming year.”
According to the agency, roughly 14 million Americans participate in FSAs, and analysts are eager to see if the change will prompt an increase in participants. This is currently unclear, because employers are not required to adopt the new benefit and may continue with existing forfeiture rules if they wish. A large number of employers currently offer FSAs as a method of providing assistance to workers in covering qualifying out-of-pocket medical expenses, while also earning valuable tax breaks for the company.
Supreme Court and Title VII: Implications for Reverse Discrimination
Earlier this month, the U.S. Supreme Court issued a decision in Ames v. Ohio Department of Youth Services vitiating the so-called “background circumstances” test required by half of federal circuit courts.1 The background circumstances test required majority group plaintiffs pleading discrimination under Title VII of the Civil Rights Act to meet a heightened pleading standard […]
Special purpose acquisition companies (better known as SPACs) appear to be making a comeback. SPAC offerings for 2025 have already nearly surpassed last year’s totals, with additional transactions in the pipeline. SPACs last experienced a boom between 2020–2021, with approximately 600 U.S. companies raising a record $163 billion in 2021. Notable companies that went public […]
Short Form Merger: Streamlining the Process for Businesses
Merging two companies is a complex legal and business transaction. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process that involves important corporate governance considerations. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process. However, […]
Tariff Response Options for Small Businesses Facing Financial Distress
The Trump Administration’s new tariffs are having an oversized impact on small businesses, which already tend to operate on razor thin margins. Many businesses have been forced to raise prices, find new suppliers, lay off staff, and delay growth plans. For businesses facing even more dire financial circumstances, there are additional tariff response options, including […]
Common Causes of Partnership Disputes and How to Resolve Them
Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]
Businesses Are Facing Financial Headwinds—A Practical Guide
*** The original article was featured on Bloomberg Tax, April 28, 2025 — As a tax attorney who spends much of my time helping people and companies who have large, unresolved issues with the IRS or one or more state tax departments, it often occurs to me that the best service that I can provide […]
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