Under new IRS guidance, an employer may amend its cafeteria plan to allow for up to $500 of unused amounts remaining in a health flexible spending account (FSA) at the end of a plan year to be carried forward to reimburse eligible expenses incurred in the following plan year. This new $500 permitted carryover feature does not affect the $2,500 annual health FSA limit imposed by the Patient Protection and Affordable Care Act. Thus, a participant with $500 remaining unused in his or her health FSA at the end of a plan year may be permitted to carryover the $500 into the next plan year, in addition to a maximum contribution of $2,500, for a potential total of $3,000 available for reimbursement the following plan year. The catch is that if a cafeteria plan adds this new carryover benefit, it must eliminate any grace period (i.e., the period of time which immediately follows the plan year during which unused health FSA amounts may be used to reimburse eligible claims incurred in the following plan year). One of the potential drawbacks of adding this FSA carryover feature is that any amounts carried over from a “general-purpose” health FSA (i.e., an FSA that reimburses all eligible health care expenses) may prevent an employee from contributing to his or her health savings account during the period of time in which the carryover amounts are available. Cafeteria plans generally must be amended to implement this new rule by the end of the plan year from which the amounts are to be carried over; but, for cafeteria plan years that began in 2013, the amendment deadline is extended to no later than the end of the 2014 cafeteria plan year. This extension does not apply to an amendment to eliminate the grace period. As such, employers who want to add this new carryover feature to their 2013 calendar-year cafeteria plans which include a health FSA with a grace period, will need to amend their cafeteria plans by December 31, 2013. Additionally, participants will need to be promptly informed of any change so they may account for any carryover amounts during the next open enrollment period.