Workers Could Have Additional Time to Spend Flexible Accounts

Workers could have more time to spend the money they sink into special accounts to cover the costs of eyeglasses, dental work, child care and other expenses, the Treasury Department said Wednesday.

The department said companies could give workers an extra 2 1/2 months to spend untaxed wages that they set aside in flexible spending arrangements for healthcare and child-care expenses. The old rules required workers to spend the savings within a year or forfeit the unspent money.

Under the new rules, if workers must now empty their accounts by the end of December, they could get until mid-March to spend the money.

Critics say it’s difficult for employees to accurately predict their expenses, forcing many to forfeit or quickly use any leftover cash.

“The new rule will give workers with FSAs more time to pay for medical and dependent care expenses and will ease the year-end spending rush prompted by the prior rule,” said Treasury Secretary John W. Snow.

The change does not compel companies to extend the deadline.

The flexible spending arrangements allow workers to set aside untaxed wages in special accounts to spend throughout the year, effectively stretching their paychecks for healthcare and child-care costs.

Employees decide how much to set aside, and the employer deducts the money from employees’ paychecks periodically throughout the year. The employee then gets reimbursed for child-care costs, as well as medical, dental, prescription drug, vision and other qualified health expenses not covered by insurance.

Federal laws do not limit the amount that can be set aside, but most employers cap the contributions at a dollar amount or a percentage of employees’ wages.

“This is great news for Americans struggling to keep up with rising healthcare costs,” said Senate Finance Committee Chairman Charles E. Grassley (R-Iowa). “Workers shouldn’t have to lose money just because they’ve been lucky enough not to have a health crisis.”

A Treasury Department spokesman said Congress would have to rewrite the law in order for employees to be allowed to roll over their unused savings from year to year, without ever forfeiting the money.