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What is an FSA Grace Period?

Internal Revenue Service Notice 2005-42 permits a plan to establish a Grace Period of two months and 15 days following the end of each plan year during which unused contributions in your 2021 plan year Dependent Care FSA may be reimbursed for qualifying expenses incurred during the grace period. The State of Michigan has established this Grace Period for the Dependent Care FSA.

Since the State of Michigan’s FSA plan years end on December 31st, you may incur qualified expenses through March 15th of the following year to use any remaining funds from your Dependent Care FSA, as long as your employment hasn’t ended.

The Grace Period should not be confused with the run-out period. The run-out period allows you additional time to submit requested substantiating documentation for your prior plan year FSA. The State of Michigan’s 2021 plan year run-out period ends on March 31st, meaning you will have until March 31st to submit requested receipts and documentation for the prior plan year.

Both types of Health Care FSAs feature Carryover. View the Health Care FSA with Carryover FAQs for more information.