2 1/2 Month Extension

New 2 ½ Month Extension Period Allowed For Health Spending Accounts

Recently, the IRS approved a 2 ½ Month Extension for Cafeteria Plans. Your Employer may have chosen to adopt this as a part of their Cafeteria Plan, also known as your Flexible Spending Account Benefit Plan. Please do not confuse this with a rollover or carryover. If you are a participant in the Health Spending Account or Dependent Care Benefit Plan on the last day of your Employer’s Plan Year and you have a remaining account balance in your FSA, you will be given up to 2 ½ Month Extension in which to incur qualified expenses. All expenses paid for with the FSA Debit Card will be reimbursed out of the current Plan Year. After the 2 ½ Month Extension, there will be an additional runoff period for expenses incurred during the previous Plan Year. Any expense incurred after the fifteenth day of the third calendar month will automatically be reimbursed out of the current Plan Year, regardless of whether a balance remains in the previous Plan Year. Please note that an expense is considered to be incurred when the service is provided, not on the day the bill is paid or when the expense is charged. Please read the following examples or contact Taxsaver Plan, our FSA Administrator, for clarification.

Here is Example A:
FSA Participant, Bob, participates in Employer J’s Cafeteria Plan that ends on December 31, 2005. As of December 31, 2005, Bob has $150.00 remaining in his Health FSA account. During open enrollment, Bob elected $1000.00 for the 2006 Plan Year. During the extension period from January 1, 2006 – March 15, 2006, Bob incurs $300.00 of qualified unreimbursable medical expenses, as defined under Code Section 213 (d), and submits these expenses sometime during the runoff period for reimbursement. Bob does not use his FSA debit card to pay for these out of pocket expenses. Bob will be reimbursed the full $300 of reimbursable expenses. $150.00 will be reimbursed from his 2005 Plan Year and $150.00 will be reimbursed from the 2006 Plan Year, for a combined total of $300.00. He will no longer have an account balance in 2005 and he will have a remaining balance of $850.00 in the 2006 Plan Year. To recap, if there are leftover 2005 funds, those dollars will be used first for any expenses incurred and submitted during the 2 ½ month extension period, then 2006 funds will be used when the 2005 funds are exhausted.

Here is Example B:
The facts are the same as in Example A, except that Bob finds a receipt in the amount of $100.00 for qualified expenses incurred in 2005 prior to the end of the runoff period and submits this expense along with the qualified expense for 2006. Bob will receive a check for $150.00 from the 2005 Plan Year and $250.00 from the 2006 Plan Year.

Here is Example C:
The facts are the same as Example A, except that Bob does not enroll for a Health FSA account in Plan Year 2006. However, he does have a remaining balance of $150.00 in his Health FSA account and he incurs a $300.00 qualified expense in February of 2006. If Bob submits that claim to Taxsaver Plan before March 31, 2006, he will be reimbursed $150.00 of the qualified expense from the remaining balance in his 2005 Healthy FSA account, even though he has not elected a 2006 Health FSA account.

Important Facts to Remember:

  • During the 2 ½ month extension period, any services paid for with your FSA Debit Card will be applied strictly to current Plan Year funds, regardless of your remaining balance in the previous plan year
  • You must be a participant on the last day of the Plan Year in order to utilize the 2 ½ month extension period
  • The extension period is available to you so that you will not be forced to spend FSA dollars on qualified expenses that you do not need at plan year end
  • Please remember that any qualified expense incurred and submitted during the first 2 ½ months of the current plan year will automatically be applied first to any remaining balance in the previous plan year first.
  • Not all Employers will offer the 2 1/2 Month Extension Period and each Employer that does offer this will tailor it to their specific benefit plans. Please contact your Employer for information regarding your Employer's benefit plans.
    •