Employers unsure about flex accounts
WASHINGTON (AP) -- For years, employers have complained that too many workers reject a benefit designed to help them with child care or medical expenses because they don't want to risk forfeiting any money still in the account at year's end.
In response, the Internal Revenue Service has relaxed the "use-it-or-lose it" rule for flexible spending accounts by letting employees carry over any unspent funds for an extra two-and-a-half-months. However, a survey of 318 of the nation's largest employers shows that only about half plan to let employees take advantage of the additional time.
"I'm not surprised," said Martha Priddy Patterson, a director at the Deloitte Center for Health Solutions, which helped conduct the survey. "It's another layer of complexity, which makes it more difficult for the employers to administer and the employees to understand."
The center is a subsidiary of the accounting firm Deloitte & amp; Touche LLP.
Flexible spending accounts are used by millions of people. Each Jan. 1, eligible workers may divert a designated amount from each paycheck, tax-free, to an account that may be used for out-of-pocket medical and child care expenses that year.
Most larger employers offer the plans because they increase employees' take-home pay without requiring the employer to increase gross wages. However, only about 20 percent to 30 percent of eligible workers take advantage of the benefit, often because of the "use-it-or-lose-it" rule.
Employers are more likely to extend the deadline for spending money in the medical accounts than they are the child care accounts, Patterson said. That's because medical expenses are less predictable.