covered" under the cafeteria plan during the "plan year." The "plan year" is commonly defined as the calendar year, but could also include the grace period of Jan 1 – March 15 of the following year. For example, the "plan year" (or "benefit year") of 2016 would run from Jan 1, 2016, until March 15, 2017, if the employer offered the grace period. Any money left unspent at the end of the coverage period is forfeited and can be applied to future plan administrative costs or can be equally allocated as taxable income among all plan participants; this is commonly known as the "use it or lose it" rule. Under most plans, the "coverage period" generally ceases upon termination of employment whether initiated by the employee or the employer, unless the employee continues coverage with the company under COBRA or other arrangement. A possibility, especially in the case of unexpected, immediate layoff, is that should an employee have unused contributions in an FSA and no additional qualifying claims during the coverage period the employee will have the added insult of "losing" these funds. On the other hand, if the payroll taxes saved on the employee's contributions exceeds the amount the employee forfeited, then the employee has still saved money overall. A second requirement is that all applications for refunds must be made by a date defined by the plan. If funds are forfeited, this does not eliminate the requirement to pay taxes on these funds if such taxes are required. For example, if a single person elects to withhold $5,000 for child care expenses and marries a non-working spouse, the $5,000 would become taxable. If this person did not submit claims by the required date, the $5,000 would be forfeited but taxes would still be owed on the amount. Also, the annual contribution amount must remain the same throughout the year unless certain qualifying events occur, such as the birth of a child or death of a spouse. Effective 2013 plan years, employers may amend their plan documents to allow participants to carry over up to $500 of unused amounts to the following plan year. (The limit was increased to $550 as of January 1, 2020.) Doing so allows participants to spend the carryover amounts on qualifying medical expenses incurred during the following plan year. A carryover of unused amounts does not affect the indexed $2,500 annual limit. A plan