I have a medical flexible spending account. It is set up to receive semi-monthly contributions from my paycheck to reach $1500 over the course of the year.
I have been notified that I will be laid off effective March 28. At that time, the flexible spending account will have about $375 in contributions.
My understanding is that I can only be reimbursed for medical expenses that occur between Jan 1 and March 28. Is that correct?
I have been told by multiple sources that the entire $1500 became available to me on Jan 1. Under this understanding, I can be reimbursed for $1500, even though I have only put in $375. So up until 3/28, I can go buy $1500 worth of covered expenses (for example on a web site I found called FSA Store), and get fully reimbursed. Is this all correct? Are there any holes in this scheme?
I don’t know about #1 but for #2, yes generally speaking the total amount of the annual deposit to a flexible spending account is available on January 1st. At my company, if you are terminated before the year is up and you’ve been reimbursed more than you’ve deposited, you are required to pay it back or they will withhold it from your last paycheck. This only applies to flexible spending accounts and not to the similar health savings accounts used with high deductible insurance plans.
I ran into a similar issue once and was told that if I selected COBRA coverage that included the FSA, I could incur FSA-reimbursable expenses until the COBRA coverage terminated.
Hi, I work for an FSA administrator. While it’s correct that the last day of eligibility is the last day of employment. You probably have around 60 days afterwards to submit for reimbursement, but the expense had to be incurred prior to being terminated.
It’s true you have access to the full annual election from day 1. So you could go on a giant shopping spree on FSA Store. However it’s generally ill advised, especially for a smaller employer. It could also be seen as leaving on bad terms, since the employer has to cover the expenses you did not pay, which alot of times causes employers to do away with their plan, ruining the tax saving for the rest of the employees in the company.
Employers are barred from withholding the last check. If they do that it would not be compliant and may violate State laws as well. There have been successful court cases from employees challenging the withholding of their last check to cover their FSA balance. You could probably take them to small claims.
Ethically, you should probably still just spend the $375. Especially if it’s stuff you don’t really need.