IRS Approves 2 1/2 Month "Grace Period" For Flexible Spending Accounts


The Internal Revenue Service recently issued Notice 2005-42, which would allow an additional 2 1/2 months after the end of a cafeteria plan year for participants to incur and submit for reimbursement medical and dependent care expenses under their employer’s Section 125 cafeteria plan.

While the “use it or lose it” rule still remains in effect, the IRS Notice is intended to help employees spend their cafeteria plan money more intelligently, and not have to rush to use up their remaining cafeteria plan money at the end of the plan year.

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