A Flexible savings account (FSA) referred to by the Internal Revenue Service Publication 969 as Flexible Spending Arrangements, is a program that sets aside monies to reimburse employees for their medical expenses. These funds are established voluntarily by an employer to keep as pretax dollars for their employees' medical and health related expenses. Pretax money benefits the employee because it decreases his tax liability. There are distinct problems if you terminate employment, but there are strategies to help you eliminate some of the negative problems.
How FSA Works
The employee decides the amount he wants to spend for his upcoming uninsured health related expenses. These covered expenses are usually insurance co-pays, coinsurance, deductibles, and uncovered expenses. An example of uncovered expenses is massage therapy. It is usually not a covered medical expense without an authorization from your physician. The employee designates the amount he wants withheld for tax purpose, from his paycheck. The allotted amount is then placed in a Flexible Savings Account by the employer. The employee submits receipts as well as insurance statements throughout the year for reimbursement.
Benefits of an FSA
Benefits of an FSA are varied. Your employer contribution are usually excluded from your yearly gross income. There are no deductions taken for federal income or employment taxes out of this contribution. You have the option of withdrawing the full amount of funds for reimbursement at any time during your FSA coverage period, even if you have not fully funded your FSA account. The reimbursement must be for eligible incurred medical or dental expenses, and not for future expenses.
Spend your remaining funds before you terminate your employment, as your employer is not allowed to reimburse you any unused monies remaining in your account. This is due to the ”use it or lose it rule” as stipulated by the IRS. You ran the risk of losing any remaining funds, if you do not take precautionary measures. Precautionary measures you can take include incurring all your medical expenses prior to quitting your job. You can do this by visiting your eye doctor; purchasing an extra hearing aid or an additional pair of glasses. In addition, you can also have a physical if you have not had one recently.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) states employees as well as their families who become unemployed for various reasons have the ability to continue their group health insurance benefits by paying the full amount of coverage premiums. This continuation of coverage last for approximately 18 months. COBRA is also applicable for the Flexible Savings Accounts; it allows the employee to continue his Flexible Savings Account even if the employee does not continue the COBRA health insurance. In order to keep your FSA benefits under COBRA, you continue your payments as normal plus pay any additional fees.
Review Your Benefits
Check with your employer (read your benefit guidelines), as there might be provisions for you to use the funds, probably until the end of the month. In addition, you might want to check to see if your company offers a run-out period for you to submit any outstanding claims that have a date of service prior to your termination date.