In the working world, most employees know that Flexible Spending Accounts (FSAs) function on a year-to-year basis and funds are subject to a "Use it or Lose it" rule where their remaining money will be forfeited at the end of the plan year (unless your employer agrees to a deadline extension such a grace period or carryover).
However, many employees are completely in the dark about their benefits when they decide to change jobs, and may be losing out on thousands of their hard-earned dollars in the process. If FSA funds remain unspent when an employee leaves a position, this money is forfeited back to the FSA plan and cannot be reclaimed by the account holder.
So the big questions on the minds of most FSA users who are weighing a career transition are pretty simple: What happens to my FSA if you change jobs? Do you lose your FSA if you change jobs? Does an FSA transfer to my new employer? Let's dive in and tackle all of these big questions.
Taking the first steps
Long before you decide to start filling out applications, interviewing and weighing whether or not to take a job offer, you should inquire with your FSA administrator or HR person about what sorts of steps you should take to ensure that you make the most of your current FSA funds. Because there are a lot of loose ends to tie up in regards to your FSA, you should be fully committed to your job switch before taking any drastic action with your benefits.
In reality, you have one of two options based on current regulations:
Spend your remaining FSA funds. An FSA works as follows: regular payroll deductions are taken out of your paycheck each month, and if they are unspent by the time you terminate your current employment, whatever is left will be under the employer's control (although COBRA options may apply in certain scenarios). Any expense incurred up to the last day of the month of employment can be submitted for reimbursement, so this is a good time to pick up needed medications or medical equipment, or to pursue a form of medical treatment that is FSA eligible until you have spent down your allocation.
Apply for COBRA Coverage. If your employer offers COBRA Coverage, this could be the easiest way to ensure that your FSA funds do not go to waste. COBRA Coverage refers to a set of provisions giving certain former employees, retirees, spouses, former spouses and dependent children the right to temporary continuation of health coverage at group rates. This will allow you to pay your remaining FSA contributions (usually with an added administrative fee) with after-tax dollars and allow you to apply for reimbursement for purchases throughout the calendar year.
For instance, if your last day of employment is July 15 and your FSA runs until December 31, you may be able to continue to pay off your contributions and be reimbursed even when you are beginning new employment. COBRA options for FSAs are limited and may not always be offered, so it's best to check-in with your FSA administrator about your options ahead of time.
What is my plan?
It's important to note that the cafeteria plan rules require that a health FSA provide uniform coverage throughout the employee's coverage period. What this means is, on the first day of a calendar year, an employer is obligated to make the employee's entire health FSA election available, even though the money has not been withheld from a paycheck.
As a result, if you are planning to switch jobs in the near future, it may be helpful to take a look at the calendar to better plan out how you'll use your allocation. For instance, if you've been thinking about getting a specific type of medical procedure done and you're nearing the end of your coverage period, it may be wise to put it off until the following year when your full allocation is available to you. It's perfectly legal within IRS regulations and may help you quickly and easily liquidate your FSA funds. The time of year in which you choose to switch jobs will have a major impact on your FSA allocation, so be sure to keep this in mind as you transition to the next step in your career.
With all of those important tasks to tackle before starting a new job, you can pick up the items you and your family use most and spend your hard-earned FSA funds at FSAstore.com! Browse our selection of thousands of FSA eligible items that can support the continued health and wellness of your entire family and ensure that you can spend every last cent of your FSA funds!
Getting a new job? It's not uncommon to wonder what will happen to the FSA account money that you contributed in your current job.
Getting a new job? It's not uncommon to wonder what will happen to the Flexible Spending Account (FSA) money that you contributed in your current job. How does the process work and how do you make sure you don't lose your FSA money? Will it all disappear? Do you still have time to submit claims?
Your FSAaccount may not be at the top of mind before you leave, but keep in mind the following questions to make your transition smoother - and to ensure you don't lose the tax-free money you contributed!
Below there'sa roundup of the top questions related to employment changes and how these affect your FSAaccount.
Top 5 FSA Basics, Work-Related Questions:
1. What happens if I leave my employer before the end of the plan year?
Even if you leave your employer before the end of your FSA plan year, you can submit a claim to be paid out of the FSA for qualified health expenses that you incurred before leaving. Typically, these claims must be submitted by 90 days after the end of your plan participation.
Learn more about Filing Flexible Spending Account Claims.
2. I used all of the money in my FSA account in the beginning of the plan year. Then I left my employer. Do I have to pay my employer back for the amount I used that had not yet been taken out of my paycheck?
No. You will not have to return that money.
3. My spouse and I are each offered FSA account at work. Can we both have one?
Yes. But you are not allowed to use both FSAs to pay for the same expense.
4. Can I continue to use an FSA after I retire?
No. Retirees are not eligible to have an FSA.
5. I am self-employed. Can I have an FSA?
No. Only permanent employees working for a company that offers FSAs can enroll for these plans. Some company owners or employees with high incomes may also face limitations.
Read more details in other Popular Posts:
Before you leave or retire, you can still incur, and be reimbursed for, expenses for your flexible spending account (FSA). Whether you have an FSA and have been laid off or fired, the question of how to handle FSA money after termination is an important one.
Can I still use my FSA after termination?
You cannot incur expenses after termination because you must be an active employee when the expense was incurred, unless you qualify for and elect COBRA to continue your FSA. However, your employer may offer a run out period in which you can still be reimbursed for expenses you incurred as an active employee. Always check with your FSA administrator for the details of your plan.
Employers are not allowed to ask for money back that you spent from your FSA if you quit or retire. This is due to the Uniform Coverage rule which ensures that your Flexible Spending Account funds are available to you in full as soon as your plan year starts.
Any FSA amount you don't use is returned to your employer. To avoid forfeiting your funds, easily spend down your FSA by shopping for FSA eligible products at FSAstore.com.
Some employers offer a Flexible Spending Account (FSA), which lets you to put aside pre-tax funds to cover qualified health care expenses. FSA money is available to you on day one of your FSA plan year. However, you might be curious about what happens if you leave your employer before your FSA plan year ends.
What happens to the FSA plan and what do you need to do? Below are a few possible scenarios.
Leaving employment before the plan year ends
If you leave employment before your FSA plan year ends, you can still submit a claim to be paid out of the FSA. Keep in mind, often the claim must be submitted within 90 days after plan participation ends, but this varies per plan (may vary with the terms of the cafeteria plan document. Some plans have longer periods, others have shorter).
Left employment & using all FSA funds early in the year
- If you used all of your FSA funds in the beginning of the plan year, and then left your employer, you do not have to pay your employer back for funds not yet taken out of your paycheck.
- Dependent Care FSAs have a different rule. With a Dependent Care FSA, funds are only available to you after they’re taken out of your paycheck.
Can my spouse and I both have FSAs?
Yes, but you cannot apply the same FSA to the same medical expenses. You also can’t use an FSA to pay for costs that are covered by your insurance plan.
Can my dependents (spouse, children, etc.) have FSAs? And, what if I'm retired?
No, your dependents cannot participate in FSAs (or elect benefits), but you can elect coverage (provide benefits) for them under a Dependent Care FSA.
FSAs can be available for retirees at the employers election.
Self employment & FSAs
- Self-employed individuals can sponsor a cafeteria plan for their employees.
- A sole proprietor (the employer-spouse) may sponsor a cafeteria plan under which his or her spouse (the employee-spouse), who is an employee of the sole proprietorship, can participate. The employee-spouse can fill out the election form and elect health insurance coverage for the whole family, including for the employer-spouse. However, two requirements must be met in order for the employee-spouse to participate in the cafeteria plan (and thus in order for the employer-spouse to receive “indirect” coverage). First, the employee-spouse must be a bona fide employee. Second, the employee-spouse must not be deemed to be self-employed (i.e., the employee-spouse must not have invested his or her own assets in the business and must not be an owner under state marital or community property laws). If the IRS determines that the self-employed individual's spouse is self-employed, then the spouse cannot participate in the cafeteria plan and the self-employed individual cannot receive coverage—there would be adverse tax consequences.
Self Employment Examples:
- Self-employed individuals include sole proprietors, partners in a partnership, or directors on a corporation's board who are not employees.
- Licensed real estate agents are seen as self-employed individuals and cannot participate in an FSA.
- Partners in general or limited partnerships cannot have an FSA as they are deemed self-employed. Spouses or other family members who are employees in the partnership can participate in certain instances.
- Outside directors from a company who are not employees would be deemed self-employed.
- More than 2% shareholders in a S corporation.
More FSA Information:
For extensive questions & answers about your FSA, turn to our FSA Learning Center.