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House Kills FSA 'Use-or-Lose' Rule

Despite a White House veto threat, the House on Thursday approved amending a 28-year-old rule requiring flexible spending account users to forfeit unused balances

By Jenny Ivy | Updated on June 08, 2012

Despite a White House veto threat, the House on Thursday approved legislation that would amend a 28-year-old rule requiring flexible spending account users to forfeit their unused balances. The bill also lifts restrictions on using FSAs and health savings accounts for over-the-counter drugs.

Under the measure, employers can allow employees to withdraw taxable money up to $500 that’s sitting in unused FSA balances at the end of the plan year or at the end of a grace period. The law also overturns a health reform provision that prohibits FSA and HSA users from getting reimbursement for OTC drugs without a prescription. Distributions for drugs without a prescription face a 20 percent federal tax.

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