Are you planning on quitting your job, preparing for layoffs, or just got let go? Wondering what will happen to your FSA or HSA account, and whatever funds that were left in there? Here’s what you need to know.
Who owns my FSA account?
Flexible spending account holders typically think that they are the owners of their account. But that is incorrect, as your employer owns the account and the money in it.
If you spend all your FSA dollars on LASIK eye surgery in the first month of your new benefit plan year, and then leave a month later, your employer will lose money because it has not been able to recoup funds from future months.
What happens to my FSA account when I quit or lose my job?
You will no longer be able to use your FSA account from that point. If you had any unused funds in that account, those funds will go back to your employer. This is because your FSA account is a “use it or lose it” account, unlike HSA accounts.
Some employers allow for reimbursements for expenses made prior to termination. This was due to a new IRS rule that was passed during the Pandemic, to help with the fast changing labor environment.
What happens to my unused funds in my FSA account?
Those funds are forfeited back to the employer. According to Treasury Proposed Regulation 1.125-5(o), employers can use the forfeited funds in the following ways:
- The employer can keep the money for themselves.
- If the employer doesn’t keep the money, forfeited amounts must be used for the following purposes:
- To offset expenses of administering the cafeteria benefit plan under which the FSA program or programs are offered
- To reduce employee FSA salary reduction amounts (or employee contributions) for the immediately following FSA plan year on a reasonable and uniform basis
- Return them to employees on a reasonable and uniform basis
What happens to my HSA account when I quit or lose my job?
Your HSA account and the funds are safe when you quit or lose your job. This is because you own the account and not your employer. Contributions to your HSA account are made with every paycheck, as opposed to an FSA account where all of your funds are available on Day 1.