Under modification permit Code Section 125 for Cafeteria Plans, participants can now carry over up to $500 of unused health FSA balances remaining at year end. Under previous modifications, employees can have a grace period at the end of the the plan year. However, participants can only have one of those benefits- the carry-forward or the grace period- or neither.
Employers are able to adopt the carryover provision by amending Code Sect 125 Cafeteria plan documents as described in the guidance. The carryover option can start as early as January 1, 2013 and no later than December 31, 2014 (it can be effective retroactively). In the same plan year, carry-forward and grace period options cannot be combined.