Health Spending Accounts Get 10% Boost in Rollover

The federal government caps yearly rollover of unspent dollars in a Health-Flexible Spending Account (H-FSAs) at $500. Internal Revenue Service Notice 2020-33 increases the amount that can be carried over from one plan year to the next to $550. This increase reflects indexing for inflation and parallels the indexing applicable to the limit on H-FSA salary reduction contributions ($500 reflected 20% of the initial maximum salary reduction election of $2,500). Please be advised that your Cafeteria Plan must be drafted to reflect that the $500 carryover amount will increase automatically if indexed. If it is not written in that way, then an amendment to increase the carryover limit must be adopted on or before the last day of your plan year. This means that 2020 Cafeteria Plans must be amended before the last day of their 2020 plan year to allow increased carryovers to a 2021 plan year.