DESCRIPTION OF H.R. 6313, THE

“RESPONSIBLE ADDITIONS AND INCREASES TO SUSTAIN 

EMPLOYEE HEALTH BENEFITS ACT OF 2018”

Scheduled for Markup

by the

HOUSE COMMITTEE ON WAYS AND MEANS

on July 11, 2018

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

July 10, 2018

JCX-59-18
i

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

A. Carryforward of Health Flexible Spending Arrangement Account Balances.................. 2
1

INTRODUCTION

The House Committee on Ways and Means has scheduled a markup on July 11, 2018, of

H.R. 6313, the “Responsible Additions and Increases to Sustain Employee Health Benefits Act 

of 2018,” which provides that a plan shall not fail to be treated as a health flexible spending 

account (“health FSA”) merely because such arrangement’s account balance (or any portion 

thereof) determined as of the end of any plan year may be carried forward to the succeeding plan 

year. This document,1 prepared by the staff of the Joint Committee on Taxation, provides a 

description of the bill. 

 1

 This document may be cited as follows: Joint Committee on Taxation, Description of H.R. 6313, the 

“Responsible Additions and Increases to Sustain Employee Health Benefits Act of 2018” (JCX-59-18),

July 10, 2018. This document can also be found on the Joint Committee on Taxation website at www.jct.gov. All 

section references herein are to the Internal Revenue Code of 1986, as amended, unless otherwise stated.
A. Carryforward of Health Flexible Spending Arrangement Account Balances

Present Law

Exclusion from income for employer-provided health coverage

Employees are not taxed on (that is, may exclude from gross income) the value of 

employer-provided health coverage under an accident or health plan.2 In addition, any 

reimbursements under an employer-provided accident or health plan for medical care expenses 

for employees, their spouses, their dependents, and adult children under age 27 generally are 

excluded from gross income.3 The exclusion applies both to health coverage in the case in 

which an employer directly pays the cost of employees’ medical expenses not covered by 

insurance (i.e., a self-insured plan) and an employer purchased health insurance coverage for its 

employees. There generally is no limit on the amount of employer-provided health coverage that 

is excludable. A similar rule excludes employer-provided health insurance coverage from the 

employees’ wages for employment tax purposes.4

 

Employers may also provide health coverage in the form of an agreement to reimburse 

medical expenses of their employees, their spouses, their dependents, and adult children under 

age 27, not reimbursed by a health insurance plan, through arrangements which allow 

reimbursement for medical care not in excess of a specified dollar amount (either elected by an 

employee under a cafeteria plan or otherwise specified by the employer). An employer may 

agree to reimburse expenses for medical care of its employees (and their spouses and 

dependents), not covered by a health insurance plan, through a flexible spending arrangement 

(“FSA”) which allows reimbursement for medical expenses not in excess of a specified dollar 

amount. The amounts available for reimbursement must be exclusively for reimbursement for 

medical care.5

 

Reimbursements may be either elected by an employee under a cafeteria plan (“health 

FSA”) or otherwise specified by the employer under a health reimbursement arrangement 

(“HRA”). Reimbursements under these arrangements are excludable from gross income as 

reimbursements for medical care under employer-provided health coverage.6

 2

 Sec 106.

3

 Sec. 105(b).

4

 Secs. 3121(a)(2), 3231(e)(1) and 3306(a)(2). 

5

 Treas. Reg. sec. 1.105-2. 

6

 Sec. 106.
Cafeteria plan

General rules

A cafeteria plan is a separate written plan of an employer under which all participants are 

employees, and participants are permitted to choose among at least one permitted taxable benefit 

(for example, current cash compensation) and at least one qualified benefit (generally an 

employer-provided benefit excludable from gross income, such as employer-provided health 

coverage). If an employee receives a qualified benefit based on his or her election between the 

qualified benefit and a taxable benefit under a cafeteria plan, the qualified benefit generally is not 

includible in gross income.7 The amount of the cash compensation forgone pursuant to an 

election under a cafeteria plan is generally referred to as a salary reduction contribution.

However, if a plan offering an employee an election between taxable benefits (including cash)

and nontaxable qualified benefits does not meet the requirements for being a cafeteria plan, the 

election between taxable and nontaxable benefits generally results in gross income to the 

employee, regardless of what benefit is elected and when the election is made.8 A cafeteria plan 

generally may not provide for deferral of compensation.

Health flexible spending arrangement under a cafeteria plan

A flexible spending arrangement for medical expenses under a cafeteria plan (commonly 

called a “health FSA”) is health coverage in the form of an arrangement under which employees 

are given the option to reduce their current cash compensation and instead have the amount of 

the salary reduction contributions made available for use in reimbursing the employee for his or 

her medical expenses.9 For 2018, the maximum amount of salary reduction contributions for a 

year is limited to $2,650.10 

Health FSAs are subject to the general requirements for cafeteria plans, including a 

requirement that such plans may not be plans of deferred compensation. This generally means 

that amounts remaining under a health FSA at the end of a plan year must be forfeited by the 

employee (referred to as the “use-it-or-lose-it rule”).11 However, guidance provides a grace 

period of two and one-half months after the end of the plan year for the carryover of excess 

benefits or contributions in a health FSA12 As an alternative to a grace period, an employer may 

amend the cafeteria plan document to provide for $500 of any unused amounts in a health FSA 

 7

 Sec. 125(a). However, in order to be excludable, any qualified benefit elected under a cafeteria plan must 

independently satisfy any requirements under the Code section that provides the exclusion, such as section 105(b) or 

106.

8

 Prop. Treas. Reg. sec. 1.125-1(b).

9

 Sec. 125 and Prop. Treas. Reg. sec. 1.125-5. 

10 Rev. Proc. 2017-58, 2017-45 I.R.B. 489 (Nov. 6, 2017).

11 See sec. 125(d)(2).

12 See, e.g., Notice 2005-42, 2005-23 I.R.B. 1204 (June 6, 2005).
to be continuously rolled over.

13 If an employee leaves employment during a year and has a 

balance in a health FSA (but no eligible unreimbursed medical expenses), that amount will be 

forfeited.

Description of Proposal

Under the proposal, a plan shall not fail to be treated as a health flexible spending 

arrangement merely because such arrangement’s account balance (or any portion thereof) 

determined as of the end of any plan year may be carried forward to the succeeding plan year. 

To the extent that amounts in a health flexible spending arrangement may be carried forward as 

of the end of any plan year to the succeeding plan year, the carryover of such amounts will not 

cause the cafeteria plan to be treated as a plan which provides deferred compensation.

Effective Date

The provision is effective for plan years beginning after December 31, 2018.

 13 See Notice 2013-71, 2013-47, I.R.B. 532 (November 18, 2013).