• The IRS Changes the "Use it or Lose it Rule"
  • May 24, 2005
  • Law Firm: Reed Smith LLP - Pittsburgh Office
  • The IRS has announced a significant change to the "use-it-or lose-it rule" applicable to health care flexible spending accounts (FSA) and dependent care assistance plans (DCAP). Under this new IRS guidance, IRS Notice 2005-42, employers are permitted to modify their FSAs and DCAPs in order to extend the period during which reimbursable health and/or dependent care expenses may be incurred. Previously, employees who participated in a FSA or DCAP were required to use all funds allocated to their accounts for claims incurred before the end of the year; any unspent amounts remaining in these accounts at year's end were forfeited.