House Approves FSA Funds for Reservists Called to Duty

Legislation approved Tuesday, May 20, by the House of Representatives would allow individuals called up from the reserves for active military service for at least six months to take unused balances in their health care flexible spending accounts as a taxable distribution.

The legislation, H.R. 6081, which was approved on a 403-0 vote, deals with the forfeiture of unused balances in FSAs when employees are called up for military service.

That can happen because the individuals and their families typically give up their employer coverage—including their FSA—and enroll in TriCare, a Department of Defense health care program that has very low cost-sharing requirements. Under the legislation, employees could receive a taxable distribution of their account balance.

“For those called to duty late in the year and who have not incurred many claims up until that point, this could be very beneficial to them since they would otherwise have to forfeit the funds,” said Scott Sims, a legal consultant in the Falls Church, Virginia, office of Hewitt Associates.

The Senate could take up the legislation, which includes other tax breaks for military personnel, later this week.

If passed, the FSA provision would apply to distributions taken after enactment.