“Give me a wild guess where you think it goes, if you don’t use it”

Well, unused Flexible Spending Account contributions aren’t pocketed by the insurers who administer them, like I’d assumed. As reported here in a video piece by Channel 6 in Corpus Christi, the money goes to . . . your employer.

Reporter Liz Crenshaw frames it as being the unintended consequence of shoddily written legislation:

In creating FSAs, Congress was careful to make sure the accounts could not be used as tax-free savings accounts. That’s why it’s ‘use it, or lose it.’

But no one gave much thought to the ‘lose it’ part of the plan: where the lost money goes.

Rep. Carolyn McCarthy (D-NY) is interviewed for the piece, and says she’s talked to people who have lost $240-300 per year.

McCarthy was one of the people who fought for the creation of the program originally. She says she didn’t even know (!) that the money, if unspent, would go to the employer.

Now she’s trying to get the program changed so up to $1000 of unused money can be rolled over at the end of the benefit year.

What I don’t understand is why it isn’t just given back to the employee as taxable income. These accounts don’t earn interest. Wouldn’t returning it as taxable income remove the incentive for FSAs being “used as tax-free savings accounts”?

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