WASHINGTON—The House of Representatives is scheduled to take up legislation this week that would ease a decades-old Internal Revenue Service rule that requires forfeiture of unused flexible spending account balances and eliminates restrictions on the use of FSAs and health savings accounts to pay for over-the-counter medication.
Under the measure, H.R. 436, employers could amend their FSAs to allow employees to withdraw as taxable cash up to $500 in unused balances remaining at the end of the plan year or at the end of an FSA grace period, if an employer has that feature.The House vote—announced by Majority Leader Eric Cantor, R-Va., comes on the heels of an IRS announcement last week that it will consider modifying the 1984 use-it-or-lose-it rule that requires forfeitures of unused FSA balances at the end of a plan year or grace period. The measure also would overturn an unpopular provision in the health care reform law that restricts the use of flexible spending accounts and health savings accounts to reimburse employees for OTC medications. Under that provision, FSA reimbursement is permitted only if the employee obtains a prescription for the medication, while in the case of HSAs, OTC reimbursement is permitted without a prescription but a 20% federal tax is imposed on the distribution. The bill would eliminate those OTC restrictions in the health care reform law.