FSA Grace Period

[Dove8]

What is the name of your state (only U.S. law)? Florida

At the end of 2005, I still had a remaining over $300 on my FSA Account. However, my claim dated February 10, 2006 was paid from 2006 year's contribution in the amount of $224.96 despite my request in the submitted form that it should be paid out of the remaining balance of 2005.

According to IRS notice of 2005-42, we should have two month and 15 days after 2005 to have occurrence of the qualified expense to be considered for 2005 cafateria account.

However, after two appeals, I was told the expiration date for my FSA account is by the end of that year. Since then, I lost my money in the account and the remaining money was simply wiped out from the balance sheet.

My question is why the state can set up its own rules and not follow IRS's "notice"

 

[LSchmid]

According to the Section 125 regulations regarding flexible spending plans, the expense must be INCURRED within the plan year. For example, if your plan year runs January 1 through December 31, your claims must be INCURRED during that time. Claims incurred after December 31st will be processed in the next year.

The "grace period" is a timeframe that allows you to submit claims from the PREVIOUS year for reimbursement. The grace period does not mean that you can incur claims in the next plan year and obtain reimbursement from the previous year's money.

If the claim was not incurred within the plan year, you lose what you have not used.

 

[ecmst12]

I believe that NOW, the deadline for claims to be incurred is March of the year following the plan year. But that is a relatively recent change and in 2005, the deadline was still 12/31 of that year.

 

[Dove8]

Thank you so much!

 

[Dove8]

My question was “why the state can set up its own rules and not follow IRS's "notice” and I tried to find out a way to have Florida reverse its rejection of my claim.

As I understood that in IRS Revenue's Notice it DOES permit a "grace period" of two months and 15 days following the end of your Plan Year for a Medical Expense incurred in the “grace period. This grace period ends on March 15, of next year. Funds will be automatically deducted from any remaining dollars in your last year’s Medical Expense FSA balance.

We should not confuse the grace period with the plan's "run-out period." The run-out period extends until April 15, of next year. This is a period for FILING claims incurred anytime during the Plan Year, which includes claims incurred during the grace period mentioned above.

 

[ecmst12]

In 2005, I am fairly certain there WAS no grace period for claims to be incurred; the last date an eligible claim could be incurred was 12/31/05. Then you had until 4/06 to submit it. The change to allow claims to be incurred through March of the following year, I think occurred for plan year 2006 and later.

 

[pattytx]

And doesn't the plan have to be amended for the grace period for filing claims to apply?

 

[ecmst12]

I don't think so, I think I just got a email sometime in the middle of the year about the change and that it was effective right away.