A flexible spending account (FSA) carryover is one way you can provide flexibility to employees who participate in these accounts. We break down FSA carryovers in the first blog post in our FSA flexibility series.
Can FSA funds carry over to next year?
Yes, employers do have the option of providing employees with an FSA carryover.
What is an FSA carryover?
An FSA carryover lets your participants carry over funds from one plan year to the next. In general, an FSA carryover applies to only medical FSAs. Under temporary rules in place though 2021 (see below), a carryover was available for dependent care FSAs as well.
How much of an FSA's funds can carry over?
The IRS permits employers to allow their employees to carryover $570 from their 2022 FSA and $610 from their 2023 FSA (indexed annually, per IRS rules).
Who determines the FSA carryover amount?
The employer determines the amount of the carryover (up to the IRS limit).
Will carryover funds be spent first?
If you offer an FSA with WEX, your participants' funds that carried over from the previous plan year will be spent first before your current plan year's funds are spent.
Perks for your participants
The ability to carry over FSA funds gives your participants peace of mind. FSAs are governed by the IRS’ use-or-lose rule, which requires that any funds in an FSA must be spent by the end of the plan year or else be forfeited to the plan. Offering the maximum allowed $610 carryover from a 2023 plan lets your participants carry up to $610 from their current plan year to the next plan year.
By providing them with more flexibility, your participants might be more likely to participate in your FSA year after year, allowing you and them to save more money.
The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel.