Leaving a job—whether it's on good or bad terms—can be overwhelming. There are projects to finish, a final paycheck to collect, and health insurance coverage to change. That's why it's important to remember that your flexible spending account (FSA) can help you through the transition. But the chief question on most FSA users' minds when this occurs is: What happens to your FSA when you switch jobs?
FSAs are employer-sponsored spending accounts that allow employees to contribute tax-free money toward a wide variety of health-related expenses. But the "employer-sponsored" part is key, since your FSA requires you to have a job to maintain the account. If you have an FSA when changing jobs, the following checklist can help you navigate the transition like a pro.
Your FSA job change checklist
There's a lot to remember when it comes to your FSA during a job change. Here's what an easy to remember everything you'll want to keep in mind:
- Check your FSA balance.
- Spend any remaining money prior to your last day at the company.
- Submit all reimbursement claims to Human Resources prior to your last day at the company.
Now, the fine print
It's rarely fun to read the details, but when it comes to your FSA, you might be in for a pleasant surprise. Here's how it works—during open enrollment (or when you get hired) you can choose to contribute money to your FSA. This is completely optional, but there are a couple unique rules to note:
- The maximum you can contribute is $2,750 for 2020. Remember that an equal amount will be taken out every paycheck depending on your contribution!
- Even though you contribute to the account throughout the year, the full amount is available to use at the beginning of the year!
A reminder about "use it or lose it"
If you've visited our Learning Center, you know your FSA money is "use it or lose it." In other words, if you don't spend the money in the account by the end of your deadline, you forfeit the cash (though some account holders have deadline extensions, and the possible $500 rollover -- more on that later.). This is crucial to remember if you're switching jobs, because unlike retirement accounts, you cannot roll the money into a new account.
However, you can elect to start a new account with your new employer, even if it's within the same year. Note that your maximum contribution resets when you start a new job.
There are a few exceptions to the "use it or lose it" rule, but for job changes, the rule applies. If you do not use the money in your FSA, you'll lose it. Because of this, it's important to spend the money and file reimbursement claims prior to changing jobs.
(In other words, it's time to shop for FSA-eligible items!)
Uniform coverage rule
It might seem like the "use it or lose it" rule benefits employers, and in a sense it does. If the money in your FSA isn't spent by the end of the year, employers get to keep it (although it can only be used in specified ways, such as towards the cost of administering the FSA program). But there's a lesser known rule that benefits employees: the uniform coverage rule.
The uniform coverage rule does not allow employers to charge employees reimbursement if they spend more money from the FSA than they contributed.
For example, if an employee chooses to contribute a total of $1,000 to his or her FSA, the full amount ($1,000) will be available for the employee to spend at the beginning of the year. However, the employee will only have $83.33 deducted from his or her monthly paycheck.
So, if an employee leaves a job in February, when she or he contributed $83.33 to the account, the employee can technically still spend the full $1,000 without penalty or being forced to provide reimbursement to the employer. Having said that, the employee would still need to file claims for the purchases before leaving the job.
Now, we're certainly not recommending employees take advantage of their employers' contributions to a company FSA program through the uniform coverage rule. However, this rule stands as a potential benefit for those who are forced to change jobs due to an unexpected life change, or layoffs.
This can offer relief for pressing health concerns—new glasses, appointments, prescriptions—that don't go away because of employment changes.
Enjoy your final day at your job (be sure to submit reimbursement claims before you leave the office though!) and feel good knowing that you didn't leave any of your hard-earned money behind.
New to FSAs? Need a refresher course in all things flex spending? Our weekly Flex-Ed column gives you a weekly dose of FSA Living 101, offering tips for making the most of your tax-free funds. Look for it every Thursday, 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.
Health Benefits for Younger Employed Adults
"I’m young! I don't need extensive health insurance coverage!"
"I only visit the doctor twice a year; do I need more insurance coverage?"
These are dangerous assumptions even for the healthiest young Americans. October 1 is a big day as it launches the new Health Insurance Exchanges through which Americans can browse and buy insurance options. Check out more details on that in our Affordable Care Act and your FSA post.
We recently joined an online “Health Insurance for Young Adults” chat with WebMD health care reform experts, Lisa Zamosky and Dean Rosen, as well as Christina Postolowski from Young Invincibles, an organization dedicated to young adults.
“I don’t need health insurance since I’m healthy.”
According to Zamosky, this is a myth because young people are often confronted with health problems.
“About 16% deal with chronic illnesses that require them to seek care on a regular basis. And young adults between the ages of 19 and 29 visit the emergency room more than any other group under the age of 75, mostly due to accidents,” Zamosky said in the chat. “What's more, there's a significant amount of research that shows young people themselves recognize the value of health insurance to protect them both physically and financially. The biggest barrier to health insurance for this group has been cost, not a lack of interest in being covered.”
“I can’t afford to spend a lot on health insurance”
As Dean Rosen pointed out, young adults will be able to enjoy a few insurance options next year.
“While young adults may select from any of the plan types offered on the exchanges (e.g. PPOs, HMOs, EPOs) there are two types of plans that may be particularly attractive to young, healthy individuals: High Deductible Health Plans (HDHPs) and Catastrophic Plans,” Rosen said.
We participated in the discussion (as "FSAinfo") asking: "Do you think young employed adults know enough about the benefits of Flexible Spending Accounts? How can more awareness get raised?"
"Flexible Spending Accounts are a great option for many people, including younger adults. They give people some additional money to use - on a pre-tax basis - for health services they need. And, just like the name says, they are indeed flexible. The best way to get word out is through forums like this, and through employers," said Rosen.
Can I get an HDHP and an HSA? How can a Flexible Spending Account benefit me?
- A young employed adult would be able to get a Health Savings Account (HSA) with a qualified HDHP.
- If a young employed adult has an HDHP and a health FSA, then he/she cannot make contributions to an HSA - unless it is a Limited Purpose FSA.
Rosen makes a good point, “A HDHP is a health insurance plan that generally does not cover out-of-pocket expenses until an individual reaches his/her annual deductible (aside from expenses for certain preventive care identified by the plan, such as childhood immunizations, well-baby exams and periodic physicals). True to their name, HDHPs have very high deductibles. On the other hand, premiums for these plans are usually substantially lower than premiums for other plan types.” Health Care Reform also limits the amount that individuals will be responsible for out of pocket for all plans, so HDHPs may be a real solution.
Benefits of an FSA
- The FSA is pre-tax (no Social Security and Medicare taxes).
- You can start using your FSA funds on day one of the plan year.
- Your FSA can be used toward a variety of qualified expenses:
- Over-the-counter products.
- Over-the-counter drugs and medicines. These products will require a prescription to qualify for FSA reimbursement.
- FSA Eligible Services. You can visit many types of health care specialists ranging from your physician to dentists to dermatologists to chiropractors and more. Cover your co-pays, deductibles and coinsurance with your FSA!
To read the entire chat, go to http://live.webmd.com/Event/Health_Insurance_for_Young_Adults