Table of ContentsView AllTable of ContentsFSA and Your JobFSA When Job EndsUsing Up FSA MoneyFSAs During COVIDHow to Use FSA FundsFAQ
Table of ContentsView All
View All
Table of Contents
FSA and Your Job
FSA When Job Ends
Using Up FSA Money
FSAs During COVID
How to Use FSA Funds
FAQ
Do you have a medical flexible spending account (FSA) that reimburses you for medical expenses like your health insurancedeductible, copays, andcoinsurance? Are you about to getlaid off, quit your job, or retire?
This article will explain what will happen to your flexible spending account when you leave your job, and what steps you can take to maximize your FSA benefit.
altrendo images / Altrendo / Getty Images
The FSA Is Linked to Your Job
Your ability to use your FSA is linked to your job. However, if you’re eligible forCOBRA continuation coverageof your FSA, you may be able to continue using your FSA even after you lose or quit your job.
If COBRA extension of your FSA is available, it’s important to remember that your former employer will not be matching FSA contributions on your behalf, even if they did so when you were employed. Instead, you’ll be making those contributions with after-tax money, plus a 2% administrative fee.
So there is no ongoing tax advantage to electing COBRA for an FSA, other than the ability to request reimbursement for funds that were still remaining in the FSA when the job loss occurred.
What’s the Difference Between HSA and FSA?
Where Does My Unused Money Go?
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 continue your FSA with COBRA, your FSA money can’t be used to pay for monthly COBRA health insurancepremiums. Nor can it be used for non-COBRA health insurance premiums such as those offered through each state’s health insurance exchange.
If you’re not eligible to continue your FSA via COBRA, you’ll want to try to use up the money in your Flexible Spending Account before your job ends so you don’t lose the money. But you’ll also have a short window (60-90 days) after your job ends during which you can submit receipts for medical expenses that you incurred before your job ended.
Can I Use It Up Before My Job Ends?
To get the most out of your FSA, you should try to spend your FSA funds before you leave your job.
Let’s say you’re leaving your job in March, and you want to use up your FSA. The good news is that it may be possible to 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 contributing for the entire year, even if you haven’t contributed that much yet. The IRS caps the amount that employees can contribute to their FSAs each year (for 2023, the cap is $3,050).However, employers can impose lower caps if they choose to do so.
Employees can choose to contribute up to the maximum amount allowed under their plan, but they have to establish their contribution amount prior to the start of the plan year and can’t change it during the year unless they have a qualifying event.
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. Your FSA will reimburse you for the entire $2,000 you promised to contribute that year (assuming you have that much in documented out-of-pocket medical costs), 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.
Depending on the employer’s rules, up to $610 can be carried over to the next year in an FSA, or your employer can allow employees an extra two and a half months after the end of the year to use up remaining FSA funds—but other than those exceptions, FSA funds remaining in the account are forfeited each year.
For 2020 and 2021 (and in some cases, 2022), the IRS relaxed these rules to address the COVID-19 pandemic:
If you’re not sick, there are still a variety of ways to use up your FSA money quickly. Here are some possibilities that will help you avoid forfeiting the money that’s left in your FSA when you leave your job.
Get Checkups
Get a checkup—or several. Be sure you’re up to date on your annual physical, and check in with other healthcare providers who oversee any treatment you’re receiving.
Under the ACA, there’s no cost for awide array of preventive care(as long as your plan isn’t grandfathered), but there are additional services that can be provided during a wellness visit that will incur charges. You can use your FSA funds to cover these out-of-pocket costs.
Buy New Glasses
Now is a great time to have your eyes checked and to buy yourself as many pairs of glasses (or contacts) as you think you’ll need for the near future. And don’t forget sunglasses! As long as the sunglasses include your vision correction prescription, you can use FSA funds to buy them.
Restock Medicine and Personal Care Items
A lot of the items for sale on the shelves in your local drugstore can be purchased with FSA funds. And thanks to the CARES Act that was enacted in 2020, this list was expanded to include non-prescription and certain personal care items.
OTC and Menstrual Products Now FSA-EligibleRules implemented in 2020 as a result of theCOVID-19 pandemicexpanded the list of FSA-eligible products. Over-the-counter medications and menstrual products can now be purchased with FSA funds. This rule change is permanent. It’s not just for the duration of the COVID-19 emergency period, and it was also made retroactive to the start of 2020.
OTC and Menstrual Products Now FSA-Eligible
Rules implemented in 2020 as a result of theCOVID-19 pandemicexpanded the list of FSA-eligible products. Over-the-counter medications and menstrual products can now be purchased with FSA funds. This rule change is permanent. It’s not just for the duration of the COVID-19 emergency period, and it was also made retroactive to the start of 2020.
Before the CARES Act, over-the-counter medications could only be purchased with FSA funds if your healthcare provider wrote a prescription for the medication, but that’s no longer the case.
FSA Storehas a search tool where you can enter the type of product you need and it will let you know whether you can use FSA money to buy it. There’s a very wide range of FSA-eligible products that we all use on a regular basis, and that can be stockpiled if you’re needing to use up FSA funds.
Things like bandages, thermometers, shoe inserts, condoms, pregnancy tests, sunscreen, tampons, and menstrual pads, as well as over-the-counter medication, can all be purchased with money that’s sitting in your FSA—definitely a better option than just forfeiting the money.
Mental Health Therapy
People often want to see a mental health therapist but are unable to find one who accepts their health insurance. But you can use FSA money to pay for mental health care, as long as it’s considered medically necessary (i.e., it’s to treat a mental health problem, rather than for general wellness).
Depending on the circumstances, you might need to obtain a letter of medical necessity in order to use your FSA funds. Make sure you ask questions and understand what’s needed before you count on your FSA funds for therapy.
Elective Treatments
Were you considering any type of surgical or other medical treatment but putting it off for a more convenient time? Now is the time. Depending on your plan, you may be able to use the money in your FSA to pay for medically necessary treatments like acupuncture and chiropractic care.
Summary
If a person with an FSA leaves their job, any money remaining in their FSA is forfeited to the employer. But there are various purchases that can be made to use up FSA funds. And depending on the circumstances, it may also be possible to extend the FSA with COBRA (contributions will then be made on an after-tax basis) in order to have extra time to use up the remaining FSA funds.
On the other hand, a person who has already spent all of their FSA funds for the year can leave their job without having fully funded the FSA, and there are no negative repercussions. The FSA funds do not have to be repaid in that case.
A Word From Verywell
If you’re going to be leaving your job mid-year and you have an FSA, try to manage your FSA funds so that you don’t end up forfeiting a significant amount of money. You can buy various medical supplies with your FSA funds in order to use them up, and you may also have the option to extend your FSA with COBRA, giving yourself more time to use your remaining FSA funds.
If you have an HSA, you don’t need to scramble to use up the money in the account when you’re planning to leave your job—or at the end of each year.
Another benefit of an HSA over an FSA is that if you have money in your HSA when you leave your job, you can use HSA funds to pay for COBRA premiums or health insurance premiums paid while you’re receiving unemployment benefits.However, FSA funds can never be used to pay any sort ofhealth insurance premiums, regardless of the situation.
Frequently Asked Questions
An FSA is an arrangement made through your employer that lets you pay for manyout-of-pocket healthcare expenseswith tax-free dollars (including copays, deductibles, qualified prescription drugs, and medical devices). FSAs are typically funded from your paycheck before taxes are calculated.Learn MoreDifferences Between a FSA and HSA
An FSA is an arrangement made through your employer that lets you pay for manyout-of-pocket healthcare expenseswith tax-free dollars (including copays, deductibles, qualified prescription drugs, and medical devices). FSAs are typically funded from your paycheck before taxes are calculated.
Learn MoreDifferences Between a FSA and HSA
If your employer offers a flexible spending account (FSA), you can sign up duringopen enrollmentup to the annual contribution limit. In 2023, FSA contributions are limited to $3,050 per year, although employers can set lower limits.
Any unused money in your flexible spending account (FSA) goes back to your employer after you quit or lose a job unless you are able to continue your FSA viaCOBRA continuation. COBRA is a federally mandated program that allows some employees to continue their current health coverage for up to 18 months after leaving a job.Learn MoreAm I Eligible for COBRA?
Any unused money in your flexible spending account (FSA) goes back to your employer after you quit or lose a job unless you are able to continue your FSA viaCOBRA continuation. COBRA is a federally mandated program that allows some employees to continue their current health coverage for up to 18 months after leaving a job.
Learn MoreAm I Eligible for COBRA?
Not exactly. If you leave a job with money remaining in your FSA and you’re eligible to elect COBRA, you’ll have an opportunity to continue to make your regular FSA contributions. But you’ll make these contributions with after-tax funds rather than pre-tax funds, and the employer can charge an administrative fee of up to 2%. The advantage is that you’ll continue to have access to funds that are in your FSA, rather than forfeiting that money to your employer.
9 SourcesVerywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.Internal Revenue Service.Revenue Procedure 2022-38.Internal Revenue Service.Notice 2013-71andNotice 2015-87.Congress.gov.H.R.133—Consolidated Appropriations Act, 2021.Internal Revenue Service.Notice 2020-29: COVID-19 guidance under § 125 cafeteria plans and related to high deductible health plans.Riley C, Ciepluch AC.Year-end budget bill provides welcome rules for flexible spending accounts.The National Law Review.U.S. Congress.H.R.748, CARES Act. (section 4402).Michigan Civil Service Commission.Can I use my HSA to pay for health insurance premiums?Healthcare.gov.Flexible spending account (FSA).Internal Revenue Service.Publication 969 (2020), health savings accounts and other tax-favored health plans.
9 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.Internal Revenue Service.Revenue Procedure 2022-38.Internal Revenue Service.Notice 2013-71andNotice 2015-87.Congress.gov.H.R.133—Consolidated Appropriations Act, 2021.Internal Revenue Service.Notice 2020-29: COVID-19 guidance under § 125 cafeteria plans and related to high deductible health plans.Riley C, Ciepluch AC.Year-end budget bill provides welcome rules for flexible spending accounts.The National Law Review.U.S. Congress.H.R.748, CARES Act. (section 4402).Michigan Civil Service Commission.Can I use my HSA to pay for health insurance premiums?Healthcare.gov.Flexible spending account (FSA).Internal Revenue Service.Publication 969 (2020), health savings accounts and other tax-favored health plans.
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Internal Revenue Service.Revenue Procedure 2022-38.Internal Revenue Service.Notice 2013-71andNotice 2015-87.Congress.gov.H.R.133—Consolidated Appropriations Act, 2021.Internal Revenue Service.Notice 2020-29: COVID-19 guidance under § 125 cafeteria plans and related to high deductible health plans.Riley C, Ciepluch AC.Year-end budget bill provides welcome rules for flexible spending accounts.The National Law Review.U.S. Congress.H.R.748, CARES Act. (section 4402).Michigan Civil Service Commission.Can I use my HSA to pay for health insurance premiums?Healthcare.gov.Flexible spending account (FSA).Internal Revenue Service.Publication 969 (2020), health savings accounts and other tax-favored health plans.
Internal Revenue Service.Revenue Procedure 2022-38.
Internal Revenue Service.Notice 2013-71andNotice 2015-87.
Congress.gov.H.R.133—Consolidated Appropriations Act, 2021.
Internal Revenue Service.Notice 2020-29: COVID-19 guidance under § 125 cafeteria plans and related to high deductible health plans.
Riley C, Ciepluch AC.Year-end budget bill provides welcome rules for flexible spending accounts.The National Law Review.
U.S. Congress.H.R.748, CARES Act. (section 4402).
Michigan Civil Service Commission.Can I use my HSA to pay for health insurance premiums?
Healthcare.gov.Flexible spending account (FSA).
Internal Revenue Service.Publication 969 (2020), health savings accounts and other tax-favored health plans.
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