Long-awaited Internal Revenue Service guidance released Friday details how employees will be able to carry over up to $500 in unused contributions remaining in general-purpose flexible spending accounts to the next year and not lose their ability to contribute to health savings accounts.
Under long-standing IRS rules, contributions to HSAs are not allowed when employees are enrolled in general-purpose FSAs. Contributions to HSAs, however, are permitted for those employees enrolled in limited-purpose FSAs — arrangements in which account balances can be used to pay only for dental, vision and preventive care services.
What remained unclear until Friday’s guidance was how, if at all, employees could contribute to HSAs in a year in which they carried over up to $500 in unused balances from prior-year contributions to their general-purpose FSAs.
The IRS guidance provides ways unused FSA contributions can be carried over without employees losing their ability to contribute the following year to HSAs.
Under the first way, an employee participating in a general-purpose FSA can elect to have unused balances carried over the next year to a limited-purpose FSA.
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