Your Flexible Spending Account (FSA) After Job Loss

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Do you have a flexible spending account that reimburses you for medical expenses like your health insurance deductible, copays, and coinsurance? Are you about to get laid off, quit your job, or retire? Knowing what will happen to your Flexible Spending Account when you lose your job will help you make smart choices.

Your Flexible Spending Account Is Linked to Your Job

Your ability to use your FSA is linked to your job.

In most cases, if you lose your job, you’ll lose your FSA. However, if you're eligible for COBRA continuation coverage of your FSA, you may be able to continue using your FSA even after you lose your job.

COBRA continuation coverage of your FSA is not the same thing as COBRA continuation coverage of your health insurance. Just because you're eligible to COBRA your health insurance, doesn't necessarily mean you're eligible to COBRA your FSA. If you do COBRA your FSA, you'll have to continue making monthly FSA contributions like you did while you were employed, only now, you'll be making those contributions with after-tax money.

What Happens to the Money in My FSA When My Job Ends?

Try to use up the money in your Flexible Spending Account before your job ends so you don’t lose the money. Money left unused in your FSA goes to your employer after you quit or lose your job unless you are eligible for and choose COBRA continuation coverage of your FSA.

Even if you're able to COBRA your FSA, your FSA money can't be used to pay for monthly COBRA health insurance premiums or for non-COBRA health insurance premiums like an Obamacare plan you buy on your state’s health insurance exchange.

How To Take More Money Out of Your FSA Than You Contributed

Sometimes you can take more money out of your FSA than you put into it.

How? Your FSA will pay for eligible medical expenses up to the amount you committed to contribute for the entire year, even if you haven’t contributed that much yet.

Let’s say you agreed to contribute $2,000 over the course of the year. By February, you’ve contributed about $333 when you break your wrist and spend $2,000 in deductibles, copays, and coinsurance. Your FSA will reimburse you for the entire $2,000 you promised to contribute that year, even though you’ve only made $333 in FSA contributions so far.

If you then quit your job or get laid off in early March, you don’t have to pay the $1,667 difference back. It doesn’t even count as taxable income.

What happens with the $1,667 you were supposed to contribute but didn’t? Your employer takes a $1,667 financial hit for it. But, don't feel too guilty. These employer costs are offset by the unused funds forfeited to the employer by other employees at the end of the year.

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