Carryover Confusion: Chief Counsel Clears Up Rules on Health FSA Carryovers

Kevin Hogan • April 18, 2014

Earlier this year, I blogged about how the IRS modified the health flexible spending account (“health FSA”) “use-it-or-lose-it” rule to allow carryovers of up to $500 to subsequent plan years.  This rule change caused some confusion.  Employers were asking, “what happens to an employee’s eligibility to contribute to a health savings account (“HSA”) if they have a carryover from a general purpose health FSA?”  The answer was that because a general purpose health FSA is considered “other coverage,” participation in a general purpose health FSA renders an individual ineligible to contribute to a HSA.  But employers still needed guidance on ways to handle health FSA carryovers for employees who also wanted to contribute to a HSA in the following year.  Could the employee waive the carryover amount?  Could the employee transfer the carryover to a HSA-compatible health FSA?

In order to provide some guidance on the issue, the IRS Office of the Chief Counsel issued Chief Counsel Advice Memorandum 201413005.  The memorandum analyzes several fact patterns related to health FSA carryovers and HSA eligibility and concluded the following:

  • An employee covered by a general purpose health FSA as a result of a carryover is ineligible to contribute to a HSA, even for the months in the plan year after the carryover funds have been completely depleted.
  • An employee can carryover amounts from a general purpose health FSA into a HSA-compatible health FSA for the following year.  This would allow the employee to contribute to a HSA if he or she was otherwise eligible.  Note that carryover amounts cannot be carried over to a non-health FSA or any other type of cafeteria plan benefit.
  • An employer that offers both a general purpose health FSA and a HSA-compatible health FSA can automatically treat an employee who enrolls in a high deductible health plan for the following year as enrolled in the HSA-compatible health FSA and carryover any amounts from a general purpose health FSA to the HSA-compatible health FSA.
  • A cafeteria plan may provide that an employee can elect prior to the beginning of the following year to decline or waive the carryover of general purpose health FSA amounts for the following year.  As a result, the employee would be eligible to contribute to a HSA if he or she was otherwise eligible.

For a copy of the Chief Counsel Advice Memorandum click here.

Employee burnout: what it is and how to prevent it

By Mardy Gould • May 24, 2024
Employee burnout has become an epidemic in today’s modern workplace. So much so that the World Health Organization (WHO) officially recognizes it as an “occupational phenomenon.”1 While many used to consider mounting workplace stress an individual employee problem, these days, it’s become an employer’s responsibility to prevent burnout before it hurts productivity and business performance—not to mention your employees’ physical and mental health. Luckily, you can prevent burnout from affecting your workforce in several ways. This article will explore the causes and signs of employee burnout and the steps you can take to create a positive work environment where employees feel safe from toxic stress levels.

Form 720 and PCORI fee FAQs

By Mardy Gould • May 23, 2024
If you're a small business owner, you may have heard of the acronym PCORI and the fees that come with it. But what is PCORI, and how does it apply to your organization? Under the Affordable Care Act (ACA), sponsors of self-insured health plans must pay a fee to fund the federal Patient-Centered Outcomes Research Institute (PCORI). PCORI is an independent organization the ACA created to conduct research to help healthcare consumers make better decisions for their specific needs and outcomes. It also performs research related to clinical effectiveness. Employers offering a self-insured medical reimbursement health plan, such as a health reimbursement arrangement (HRA), must pay this fee by July 31 each year via Form 7201. This fee was initially set to expire in 2019, but Congress extended it through September 30, 20292, due to the Further Consolidated Appropriations Act of 20203.
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