How are FSAs handled when you change jobs?

Question

For my 2019 benefits from my company I enrolled for $1000 in an FSA account. So as of Jan 1 I have $1000 available to spend, but in late Feb. I changed jobs and I have one more check being issued to me next week.

So far I have only contributed about $150/$1000 but when talking to the rep from company handling my FSA since the account is prefunded for the year I still am able to spend $1000 as long as I do so before the March 31 cutoff date for my accounts.

So my question is kind of multi-part. I have several questions on how this works:

• Will they take the remaining amount needed to get to $1000 from my final check? If not, and if I were to spend the full $1000, where will that extra money come from or who/what entity will have to eat the cost?

• Will I have to reimburse that money somehow or does some banking entity that prefunded my account just have to eat the cost or did my company prefund my account and they will eat the cost no matter if I spend it or not?

• If I do spend over my contribution amount, how does that work with my taxes? That seems like it could get very confusing when I just spend 800 tax free dollars that I did not pay.

Answer 1

The most important thing to understand about healthcare FSAs is that it is not an account that you own.

FSA is a Flexible Spending Arrangement (HSA is a Health Savings Account), in this arrangement you elect to forego some amount of your earnings to be made available to spend on healthcare expenses. When you incur qualified healthcare expenses, your employer reimburses you up to your annual election.

With this in mind, you don't have an "account" that was "pre-funded." You told your employer "I'd like to set aside $1,000 of pay this year." Your employer then takes $41.67 out of each of your semi-monthly pay checks, but you can spend the whole $1,000 as of the first day of the year. You do not owe any un-contributed funds in the event that you leave the company before contributing the full $1,000 even if you spend it. To my knowledge this disparity is also not a taxable event to you.

Typically, you have 30 days to submit claims once you leave the company. Also typically, claims need to be incurred before you leave the company. You definitely do not have until March 31, 2020 to submit claims against your 2019 FSA if you leave the company this year. March 31 is a normal cutoff date for prior year FSA submissions, but you will probably only have 30 days after your termination date.

Some FSAs are eligible to be extended via COBRA. This is only advisable if you definitely have a procedure coming up after your termination date as once you leave the company your contributions to the program are made with after-tax money.

Answer 2

Make sure that you fully understand the dates. In my experience the last date for a medical FSA is that the procedure had to be on or before the last day of work, though I guess they could use the last day that you have medical coverage.

You need to get them to put in writing the last day for a procedure to be covered, and the last day to submit a claim.

The medical FSA is configured to allow you to spend money before it comes out of your paychecks. If you spend more than you have contributed but less than what you have signed up for, they don't come after you if you leave your job.

But in my experience they want to limit your ability to spend money if you have spent more than your contribution when you are leaving. Of course your contributions should also include your final paycheck, and include more checks if they also payout vacation balances by extra paychecks.