The Treasury Department says it lacks the legal authority to change the use-it-or-lose-it
rule for flexible spending accounts (FSAs), a rule that some say is an obstacle
keeping employees from using them, the Wall Street Journal reports.
FSAs allow employees to pay for medical bills with pretax dollars. At the beginning
of the plan year, employees choose an amount to be withheld from wages during
the course of the year and deposited into a separate account. Under rules for
FSAs, at the end of the year, employees forfeit any unused amounts.
Senator Chuck Grassley, chair of the Committee on Finance, had asked the Treasury
Department to review its rules for FSAs and amend them so employees could carry
forward unused amounts for use in subsequent years.
In a response to Grassley's request, Secretary of the Treasury John Snow said
that without congressional action, the department has no legal authority to
change the use-it-or-lose-it rule.
Grassley disagrees with Snow's assessment.
"[The] rule doesn't pass the common sense test, and it's hurt taxpayers
for more than 20 years," said Grassley in a written statement. "I also
don't understand the argument that the Treasury Department and the IRS don't
have the power to change the rule. If they wrote it, surely they have the power
to change it."
Snow also suggested that eliminating or changing the rule would hurt some of
the Bush administration's other priorities, such as health savings accounts
(HSAs). HSAs give tax-favored treatment for current medical expenses and allow
workers to use unused amounts in one year in subsequent years. However, rules
for HSAs require that the worker be enrolled in a high-deductible health plan
in order to participate. The Bush administration contends that this high-deductible-plan
requirement will help reduce overall healthcare spending.