Under current law, any unused funds remaining in an employee's FSA at the end of the year are automatically forfeited. Such a change would be particularly helpful for employees with medical-care FSAs. It's common for employees to end up with unspent funds in their health-care FSAs because it's so difficult to predict medical expenses far in advance. Decisions on how much salary to earmark to FSAs need to be made before the plan-year begins. Predicting child-care expenses is easier since most parents know approximately how much their child's day care center will be charging in the coming year.
Most larger companies give employees the opportunity to earmark part of their salary to FSAs.
Any salary deposited in an FSA escapes both income tax and Social Security tax. The House bill would provide an additional personal exemption for taxpayers caring for elderly family members at home. The Senate bill would also ease the eligibility requirements for converting traditional Individual Retirement Accounts to Roth IRAs.