Originally created 08/24/04

Use-it-or-lose-it rule for tax-free health accounts challenged



WASHINGTON -- The Treasury Department should see if it can change a rule that makes people forfeit unused money they put into tax-free health care accounts, the chairman of the Senate Finance Committee said Monday.

Employees who set up flexible spending accounts agree to put aside a specified amount of salary for medical costs not covered by health insurance. Workers' taxable income is then reduced by that amount, saving them money at tax time.

Employees, however, must forfeit to their employer any money that hasn't been used by year's end, a provision that has made the accounts unpopular.

In a letter to Treasury Secretary John Snow, Senate Finance Committee Chairman Charles Grassley, R-Iowa, asked the department to determine if it can rewrite the rule on its own. He noted that several proposals have been offered in Congress that would modify or eliminate the so-called "use-it-or-lose-it" provision.

"The current rule unjustly enriches employers at the expense of hard-working employees who participate in FSAs (flexible spending accounts)," Grassley wrote. "Modifying this rule would help millions of Americans meet their health care expenses and make the FSA rules more rational."

A message seeking comment was left at the Treasury Department.