FSA Grace Period Example


Example (1): Employee X elected $1,000 for a health care FSA for the plan year January 1 - December 31, 2010. As of December 31, 2010, X has $200 remaining unused in his health care FSA. X designated a $1,500 contribution to his health care FSA for the plan year January 1 - December 31, 2011. During the grace period from January 1 through March 15, 2011, X incurs $300 of unreimbursed medical expenses. The unused $200 from the plan year ending December 31, 2010, is applied to reimburse $200 of X's $300 of medical expenses incurred during the grace period. Therefore, as of March 16, 2011, X has no unused benefits or contributions remaining for the plan year ending December 31, 2010. The remaining $100 of medical expenses incurred between January 1 and March 15, 2011, is paid or reimbursed from X's health care FSA for the plan year ending December 31, 2011. As of March 16, 2011, X has $1,400 remaining in the health care FSA for the plan year ending December 31, 2011.

Example (2): Employee Y elected $1,000 for a health care FSA for the plan year January 1 - December 31, 2010. As of December 31, 2010, Y has $200 remaining unused in his health care FSA. Y designated a $1,500 contribution to his health care FSA for the plan year January 1 - December 31, 2011. Y incurs $150 of medical expenses during the grace period (January 1 through March 15, 2011). As of March 16, 2011, Y has $50 of unused benefits or contributions remaining for the plan year ending December 31, 2010. The unused $50 cannot be cashed-out, converted to any other taxable or nontaxable benefit, or used in any other plan year (including the plan year ending December 31, 2011). The unused $50 is subject to the "use-it-or-lose-it" rule and is "forfeited." As of March 16, 2011, Y has the entire $1,500 elected in the health FSA for the plan year ending December 31, 2011.