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.
A little-known fact: Your entire year's worth of allocated FSA funds is available to you on the first day of the plan year. So, even if you've only contributed a few paychecks' worth so far, if you need to use the funds for a larger qualified expense, you're able to do so -- you'll just "pay back" the account over the rest of the year through your already planned payroll deductions.
This is a great perk for those situations. But, life isn't a straight line, and sometimes things happen -- unexpected expenses, relocation, etc. -- that can get in the way of your planning and budgeting. If your life doesn't always stay on the straight and narrow, check out these tips to stay on target.
Consider lifestyle changes
If you're relocating to a larger, more-expensive city, you want to take into account a higher cost of living. For instance, let's say you're uprooting from Springfield, Missouri, to Brooklyn, NY. As the cost of living is nearly double in the Big Apple, you'd need to increase your salary two-fold to enjoy the same standard of living. Even if you're getting a bump in pay, you'll want to create a spending plan accordingly.
(Please note: If you switch jobs -- and health coverage -- your FSA stays with your employer. Any expenses you had prior to leaving are fine, but these funds aren't transferable, and don't "come with you" if you switch jobs.)
If you're expecting a lifestyle change like a move, you might want to use the funds in the FSA to help pay for out-of-pocket medical expenses. This way, more of your take-home pay can go toward your living expenses. Need to spend more on rent, bills, transportation and food? Then use the money in your FSA toward qualified medical supplies and other out-of-pocket health care costs.
Stay on top of eligibility
It's always good to know what's eligible -- and it changes pretty often (our "New Arrivals" section is a pretty good barometer for what's up). Just because something isn't considered preventive medicine last year doesn't mean it doesn't fall under preventative medicine this time around. By knowing exactly what's eligible, you can put the money that would otherwise be sitting in your FSA to good use.
Divvy up your funds
Figure out what your medical expenses might be for you and your family for the rest of the year. Then allocate the money in your FSA accordingly. How you want to divvy up the funds is based on your personal situation and different needs for each season. For instance, when will you need to buy supplies for medical conditions, or over-the-counter medication during flu season?
"End-load" your spending
If you're unsure of how much you'll need to spend on medical expenses throughout the year, figure out ways to spend whatever's remaining in your FSA in the last months. The max your employer can contribute is $2,700 within a plan year. So, since you'll have access to the full year's allocation at the beginning of the plan year, you'll want to figure out how much you can reasonably spend through each month.
Remember: if you don't use it, you'll lose it. If it's deemed necessary, get Lasik, pick up new prescription sunglasses, or be prepared with necessary health-related supplies and equipment. The beauty of online shopping is you can figure out what your grand total is before you check out. Whereas if you shop in a brick-and-mortar drugstore, you can only best guess how much you'll be spending. It'll keep you within budget, and prevent you from going over your limit.
If your life is prone to change, take full advantage of the fact that the FSA funds provided by your current employer are made available from the start of the year. When life throws you a curveball, knowing what's eligible, assessing any changes in your financial needs and living situation, and creating a spending plan will ensure you spend all the money before the end of the year.
From FSA basics to the most specific account details, in our weekly Asked and Answered column, our team gets to the bottom of your most-pressing flex spending questions. It appears every Wednesday, 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.
Starting a new job can be an exciting time. It can also be a whirlwind of paperwork and account updates. The same is true for your FSA. So, before you decide to start filling out applications and accepting job offers, schedule a few minutes with your FSA administrator to see what steps you should take to help you make a smooth transition.
And don't worry -- most of the steps involve spending and enjoying tax-free healthcare money, both with your current FSA, and one you might sign up for in your new role.
Spend what's left
You've been getting money taken out of your paychecks monthly to contribute to your FSA. Now that you're leaving your job, make sure that you spend the down remainder of what you've already contributed, or you'll lose it all.
Let's say you put $1,500 in your FSA at the beginning of the year. That amount is available in full from the beginning of the plan year, but remember, that's your employer's money. You effectively pay them back over the course of the year through payroll deductions taken in equal amounts each pay period. But, if you decide to leave your job mid-year, you don't have to continue paying them back, those FSA funds are yours to use until you leave the job. Any left over unused funds are forfeited back to your employer.
Ethically, spending more than you've contributed is a gray area. On one hand, doing this leaves the employers holding the bill for people that don't work there anymore. On the other, it's legal, and employers also get whatever their employees don't spend at the end of the deadline, so expenses like this typically even out. If you plan on spending this money, be sure it's used for necessary medical expenses - it's the right thing to do.
Apply for COBRA
If your employer offers COBRA and your account is eligible for COBRA, it could be the easiest way to ensure that your FSA funds do not go to waste. (It can also come in handy if there's going to be a gap between your old coverage ending and your new plan starting.) COBRA coverage gives former employees, retirees, spouses, former spouses and dependent children temporary continuation of health coverage at group rates.
This will allow you to pay your remaining FSA contributions (usually with an added administrative fee of 2% for a total of 102% of the applicable cost of coverage)) and let you apply for reimbursement for purchases throughout the calendar year.
So, if your last day of employment is August 15 and your FSA runs until New Year's Eve, you may be able to continue to pay off your contributions and be reimbursed even when you're starting a new job.
Keep in mind, COBRA can be expensive for some, and options for FSAs are limited (or may not even be offered), so it's best to check-in with your FSA administrator about your options ahead of time.
If you enjoyed your FSA at your old job, you can always choose to open up another FSA at your new job if your new employer offers the option (and your election at your previous employer doesn't count towards that $2,650 max election for 2018 we told you about earlier).
But less time means larger monthly payments. This one you've got to be careful for. If you elect to get another FSA at your new place of employment, the amount you promise to contribute will still be taken out of your paychecks, but in larger quantities, based on how much time is left until the end of your plan year.
So, again, if you agree to put $1,500 into your FSA for the year, the same as at your old employer, it would be equivalent to contributing $125 a month for the year. But, what if you get this new job in July? That would bump the amount coming out of your paycheck each month to $250, because you already agreed to the $1,500 yearly contribution.
You have fewer months left for the current FSA plan year, so instead of stretching across a 12-month time period, it would be shortened, depending on when your new plan year runs.
Make sure you know how much per month you'll have to pay before agreeing to a certain contribution limit, because that money may be taken out of your paycheck in a much shorter amount of time.
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.