You could take everyone to court and you would lose. The IRS has fiercely protected this balancing of risk between the “Use-it-or-Lose-it” rule and the experience losses, as the IRS refers to them, of the employer when an employee terminates employment but has already pre-spent their Health FSA dollars. Both have been a feature of these plans since their inception in 1986.
As has been pointed out, you DO have the option to COBRA your Health FSA through the end of your Plan Year, either through pre-tax withholdings from a final paycheck, or you can pay your “premiums” on a month-to-month basis from after-tax dollars. This is not a discretionary feature of these plans, so if an employer denies you the right to exercise this option, they are in violation of the rules.
I’m sorry you lost your $200.00. It does suck. Employers are bad about explaining these options to employees in advance of a termination. Unfortunately, the onus is on you to understand the rules of a plan you chose to participate in.
Well recently the rules have changed to allow employers the option of letting their employees carryover up to $500 of unused funds from year to year, cumulative. Employers have to make this election. This would be in lieu of the grace period typically allowed to claim expenses from a prior plan year. I don’t think this would have helped in the situation in the OP though.
Anytime I had unused funds I bought a lot of bandages.
Exactly why I didn’t mention it, Bone. The new Rollover Option is awesome and I’m glad the IRS finally offered it. Unfortunately, it does nothing to help the OP.
Just to be clear, I never suggested or considered going to court. It never crossed my mind. First because it’s perfectly legal, and second because I’d spend more than $200 doing so.
It just pisses me off because we had a presentation where they explained about losing it at the end of the year (except for the $500 rollover) and naturally assumed that the full nature of the program had been explained to us. The presenter from the benefits company seemed like a nice lady who wouldn’t withhold such information, and human nature is to assume that a program supposedly designed by legislators to benefit the taxpayer doesn’t contain such a stupid “screw you” provision.
The year end rules make sense, they keep people from withholding large amounts solely to postpone taxes, and they give you the ability to plan for them. The layoff rules penalize you for a totally unpredictable occurrence for no reason that I can discern, and they hit you financially at a time of financial stress. You just don’t expect such a thing.
Yup. I always do any expensive dental work at the beginning of the year, when possible, so it goes on my Flex Spending card. One year (back when you could put $4000 on it per year), I had LASIK and dental work done, and paid for it via Flex Spending.
The last time I was laid off, I took some small satisfaction knowing my employer was on the hook for some of my Flex Spending charges. Heh.
A few misconceptions: first, yes, it can have a tax value, as the money you put into the FSA doesn’t count as “income”.
Second, ***you ***choose the amount you want to put into your FSA. You estimate what you spend on healthcare based on previous years’ spending.
So let’s say you take a few medications daily, and the total cost to you is $50 a month. You can put that money in the FSA and pay for your meds that way.
If know what you will spend out of pocket at the dentist’s for an exam, put that in the FSA.
Need new glasses/eye exam? Figure out the cost of frames and lenses, and put that in the FSA.
Upcoming dental work? Into the FSA.
There are worksheets online that can help you figure out what you need to put into the FSA. You don’t have to WAG it.
Only you know yourself well enough to answer that. For me, I wouldn’t put more into the account than I can guarantee I’ll be using. I’ve got pretty good insurance, so I only have the deductible and copays. And the easiest thing to document, for me, is the prescriptions. So if I only put in enough for the prescriptions and the deductible, I’m pretty sure I’ll get everything back and won’t spend any time kicking myself at the end of the year.
davidm, I apologize – my comment regarding taking someone to court was in response to Enola Gay, and not to you.
And I do understand your frustration. I am sure the nice lady did not mean to withhold information. I will say as one of the “nice ladies” who does similar presentations, I’m usually given something like 15 minutes to present a rather complex program. I can tell you that on every single document I publish – summaries of benefits and coverage, claim forms, summary plan descriptions, etc. – the information about terminations is included. I try to mention it in presentations as well, but time does not always allow as much detail as everyone would want.
Grumpy Bunny knows exactly how to work these plans. They really do offer you a bona fide tax savings, and I hope you will use them to your advantage in the future. But definitely have your expenses incurred early in the year and get your money out of the account as soon as possible.
Again, if your employer did not offer you the option to COBRA your Health FSA through the end of the Plan Year in order to preserve your funds, then they are in violation of the rules. If you were the laid-off employee of one of my clients, I would advise them to let you COBRA the account if you wanted to, even at this late date.
Is the amount I elect to place into the FSA just deducted from my salary? Ie instead of paying me lets say, $1000 and then taking the taxes out, my company takes that $1000 and puts it into a FSA
Typically, can I use it to pay off deductibles and co-pays? That and medical procedures NOT covered by my insurance seem to be where this would get used.
What about prescription drugs NOT covered by my insurance, i.e. Viagra, Propecia, Cialis, I dont know, any other drug that is not “life-saving”?
Yes. If you elect $1200/year, they’ll take $100 each month, before taxes, and put that in the FSA. This amount is subtracted from your gross pay before income taxes are withheld, and will not be part of your taxable gross income at the end of the year.
2 & 3 Yes. Basically anything that could be deductible from your taxes is an allowable expense. And note that what’s allowable is based on the IRS rules, not your company rules - so it doesn’t matter if your company insurance won’t cover Viagra because it isn’t “life-saving” - the fact that it’s a prescription drug means it’s allowable for FSA.
You can’t incur prescriptions, usually my main expense, early in the year. They’re a monthly or quarterly (if you get 90 days worth) expense. The COBRA was available but the plan was a high deductible plan with my employer covering the deductible through an HRA. I would have had a high deductible plan without the employer paid HRA and that just wouldn’t have made sense in my situation. It made more financial sense to move to a different plan with a different insurer. I would have used the entire deductible and the slightly higher premium on the plan I chose adds up to less than that deductible.
This is not directly related to the termination thing, but another thing that angered me is that, earlier this year, my employer changed our plan after we had made our FSA election for the year. So we made our FSA choices based on one plan and then had the finances completely changed on us and we weren’t allowed to change our FSA deductions based on the new plan.
I didn’t know that you could opt to continue your FSA via COBRA; I don’t think this was an option for me when I was laid off in 2013.
It’s a moot point, though. The DAY I was laid off, I refilled every single medication I take because I knew it would take forever to get COBRA sorted out.