One of our new groups is switching effective dates for all plans to 1/1 from 10/1. The TPA that administers the group’s FSA asked if the filing deadline for the short plan year will be 3/31/2023 and whether a carryover will be offered for the short plan year. If so, what is the allowed maximum dollar amount to carry over with a short plan year?
The Form 5500 filing deadline for short plan years is the last day of the seventh calendar month after the short plan year ends. If the short plan year ended on September 30, 2022, the filing deadline would be April 30, 2023, but because that falls on a Sunday, the deadline is May 1, 2023.
Allowing FSA carryovers is optional. If the group’s cafeteria plan allows for carryovers, the carryover amount to or from the short plan year is not prorated. The maximum carryover amount allowed by the IRS is 20% of the maximum FSA salary reduction contribution for that plan year (or $570 for carryovers from a plan year that began in 2022).
If the plan does not permit carryovers, it will need to be amended if the group wishes to allow carryovers from the short plan year. Please note that offering a carryover is an alternative to offering a grace period, and a plan cannot offer both for the same plan year. A grace period allows all unused funds to be used for 2-1/2 months after the end of the plan year, even for expenses that occurred after the end of the plan year. A carryover allows funds up to the maximum carryover amount to remain available for a longer duration, perhaps even indefinitely if the plan does not limit multiple-year carryovers.