Unexpected changes are part of life. No matter how hard you might try, it's impossible to plan for every eventuality. Some changes—marriage, birth, a new job—are joyous, while other changes— unexpected death, job loss, divorce—can be devastating. But, regardless of whether a life change is positive or negative, it's important to remember how these events can affect your FSA.
Here's some good news: qualifying life events typically entitle you to make changes to your FSA without penalties or fees. However, not all employers allow mid-year changes to your account, so it's a good idea to notify your account administrator within 30 days of the event in order to confirm whether or not you're allowed to make a change.
The IRS determines what counts as a "qualifying event," but your employer ultimately decides whether or not midyear changes are allowed. While we outline the below as qualifying events that will allow you change your FSA election, you'll want to check with your Summary Plan Description or with your FSA administrator on what specific qualifying events are allowed to be sure. Here's the basics you need to know about FSA qualifying events.
Change in marital status
Marriage and divorce are both typically considered qualifying events. If you need to adjust your FSA contributions, you'll need to have proof of the event (marriage certificate or divorce documents) to show your account administrator.
It's also important to note that the changes you make to your FSA must be consistent with the life event. For example, if you've gotten married, your FSA contributions wouldn't usually decrease. Instead, they would increase to accommodate coverage of your new spouse.
Change in dependent coverage
Whether you're welcoming a new addition to your family by birth or adoption or you're losing a dependent because he or she turned 27 and is no longer eligible for coverage on your health insurance plan, change in dependent coverage is a qualifying event.
Here's what's included: birth, adoption, death, new step-children, and dependents who have aged out of coverage. Once again, the changes you make to your FSA account must be consistent with the life event. For example, if you've recently given birth, you can't request to lower your contributions. You can only request to increase your contributions to account for the new baby.
Change in employment
Regardless of why your employment is changing—if you're quitting your job to pursue something new or have been unexpectedly laid off—changes in employment often count as qualifying events, but are different than other changes. FSA money is "use it or lose it", so if you leave your job (for any reason), you'll forfeit the cash in your account.
If you know you're leaving your job and will have unused money in your account, then it might be time for an FSA-eligible shopping spree. But even if you were fired or unexpectedly laid off, there's still good news. You can open a new FSA at your next job and benefit from the tax advantages, even if it's within the same year.
Open enrollment is your BFF
Let's be real: not all life changes are "qualified events," and even if they are, your employer might not allow for midyear changes to your FSA. Luckily, open enrollment happens once per year and during that time you can make changes to FSA—no "qualified events" required.
From FSA basics to the most specific account details, in our Asked and Answeredcolumn, our team gets to the bottom of your most-pressing flex spending questions. It appears on Wednesdays, exclusively on the FSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram and Twitter.