Under an employer-sponsored flexible spending account (FSA) plan, you elect to contribute a designated amount of your annual salary to a personal health care FSA. Contributions are withheld in installments from your paycheck on a pre-tax basis and you can use your balance to pay for eligible out-of-pocket medical expenses. However, the funds must be used for expenses incurred during the election year. If you do not use the funds during the year, they are forfeit.
BUT, what if you leave your job unexpectedly?
A friend recently reminded me of the pitfalls of an FSA. She was suddenly dismissed from her position during an executive shake-up and replaced with a younger, less expensive temp-to-perm. She had elected a higher annual deduction this year for an end-of-year procedure, so there was an unused balance in her account.
In a word, unless she could find, and manually submit, unreimbursed expenses incurred between January 1 and the date of her termination, the money would be forfeited to her employer.
Her only other option was continue to remit her monthly deduction PLUS a 2% “administration fee” until the end of the year. As long as she made the continuing payment under COBRA, she could use all the new, and remaining, funds until December 31.
Which leaves us with a buyer beware moment.
- Don’t put off using FSA balances until the end of the year.
- If your plan provides one, use your FSA debit card at the drugstore to pay for FSA eligible over-the-counter items at the register during the year.
- If you do not have a debit card, or use online stores like Drugstore.com which don’t accept them, get a Letter of Necessity, or prescription, from your doctor at the beginning of the year for things like antacids, lactose intolerance tablets, acne face products, vitamin supplements, etc. Send in these expenses with a copy of the letter or prescription for reimbursement. You will find a list of eligible expenses on your FSA provider’s site and see which items require a letter or prescription which must be dated BEFORE you incur the expense or your plan ends.
- If something is starting to feel odd about your position – use your balance to stock up on eligible over-the-counter products, submit all receipts immediately, or use the remaining funds on eligible expenses like eyeglasses.