Carry Over Your FSA Funds

February 10, 2021

If you’re an employee who has a Flexible Health Spending account (FSA) through your employer, you can use those pretax dollars to pay for unreimbursed health expenses (like dental implants) or dependent-care expenses. Late last year, there were changes made to the federal tax plan for those who didn’t use all the money in their 2020 accounts because of the pandemic. The IRS has eased their FSA rules with help from Congress that will allow unused funds from 2020 to be used in 2021.

Participants in FSA plans can carry over unused funds from 2020 to 2021 and 2021 to 2022, or for up to 12 months for companies with fiscal years. For dependent-care accounts, the law extends the age limit from 12 to 13 for some carried-over funds. For workers to take advantage of these changes, company plans must often opt into the new rules.

The Consolidated Appropriations Act, 2021 (CAA), signed into law on December 27, 2020 gives employers the option to allow participants to roll over all unused amounts in their health and dependent care flexible spending accounts (FSAs) from 2020 to 2021 and from 2021 to 2022. Employers can also allow employees to change their health FSA or dependent care FSA contribution rate during 2021 without requiring an election-change event such as the birth or adoption of a child, or a change in marital status.

Internal Revenue Service (IRS) rules provide employers two options for unused health care flexible spending account (FSA) funds. Previously, employers had to follow the “use it or lose it” rule, meaning that any account balances left at the end of the year were forfeited. An employer must still follow the “use it or lose it” rule for dependent care FSA funds. A dependent care FSA plan allows for a reasonable time for employees to submit claims after the plan year-end, but all dependent care expenses must be incurred by plan year-end.

Check with your employer if you carry a flex spending health account to see if your plan qualifies you eligible to carry over healthcare funds from last year. This new ruling provides an excellent opportunity to help offset dental procedures like minimally invasive implants.