Close a health FSA year using the plan's actual terms

A health flexible spending arrangement needs a year-end review based on its adopted terms. IRS Publication 969 explains that a plan may provide a carryover or a grace period, subject to the applicable rules, but a health FSA cannot offer both for the same year. Obtain the plan provision and amendments before telling employees what happens to unused amounts.

Record the plan year, applicable dollar limit and any lower limit or conditions the employer adopted. Use the limit for that plan year rather than copying last year's enrollment material. Keep health FSA records separate from dependent-care arrangements and HSAs, which have different rules and reporting questions.

A run-out period gives participants time to submit eligible claims for an earlier period. A grace period can permit eligible expenses incurred after the plan year to use remaining funds under the plan's terms. The IRS explains these as different concepts. A later submission deadline does not automatically extend the period in which expenses may be incurred.

Build a calendar showing the last eligible expense date, claim-submission deadline and any grace-period end. Ask the administrator to confirm how pending claims and appeals affect the close. Keep employee communications consistent with that calendar, including any specific conditions for using a carryover.

For an illustrative January claim for a December expense, preserve both dates. The claim's submission in the new year does not by itself make it a new-year expense. Conversely, a January expense needs its own eligibility analysis under the adopted arrangement; it should not be backdated to consume an old balance.

Obtain the administrator's participant-level schedule of elections, employer amounts where applicable, approved reimbursements and pending items. Compare payroll deductions with the funding records, but preserve the distinction between payroll activity and the administrator's benefit-balance calculation. Investigate missing or reversed deductions separately from claim eligibility.

Ask the administrator to show how the permitted carryover or grace-period payments affect each closing balance. Keep unresolved claims visible instead of treating every unspent amount as final. A summary balance viewed before the run-out process finishes may not be the amount ultimately available for carryover or forfeiture.

Where a participant changed employment status or coverage, give the administrator the relevant dates and plan terms. Do not refund an apparent excess through payroll merely to clear the reconciliation. Publication 969 explains that unused health FSA balances are subject to the arrangement's rules, including restrictions on refunds.

Compare the finalized participant results with the opening balances loaded into the next plan year. Retain the report version and administrator approval, and identify any remaining claim that could change the result. If a correction arrives later, preserve the original balance and the adjustment instead of replacing the history.

Give employees a clear explanation of their available amount and the applicable expense and submission dates. Refer coverage interactions, including HSA eligibility questions, to the benefits adviser. Close the employer's accounting reconciliation using the administrator's confirmed figures and keep pending funding differences assigned to an owner.