A flexible spending account lets you set aside money to use tax-free for healthcare expenses. Most of the time, your employer will provide an open enrollment every year when you can decide how much money to put into the account. You can generally only change these options once a year, unless you have a special life event, like getting married or having a child.
Unless you face a qualifying life event, you can usually only make changes to your flexible spending account during your employer's open enrollment period.
How FSAs Work
Flexible spending accounts allow you to have money withdrawn from your paycheck into a special account that you can use to spend on health-related expenses. If your employer offers one, you'll usually have an annual open enrollment period when you can decide to participate or not and how much to have withdrawn from each paycheck.
You can generally only use money in your FSA during the year it was withdrawn from your paycheck, though you may be able to roll over some funds to the following year or use them in a brief grace period in the next year, depending on your employer. You can save money if you use the funds in your FSA, since you don't pay taxes on them, but if you don't use all the money, it will be forfeited, so it's important to choose your contributions based on what you expect to spend on health expenses.
Details like when open enrollment happens, whether your employer contributes anything to the account and whether there's any grace period or rollover provision for unused funds are up to your employer, so talk to someone at work if you have questions. You can only open an FSA through work, though there are other health-related accounts you can open for yourself in certain circumstances.
Changing FSA Provisions
Once you enroll in an FSA, you're generally required to stick to your contribution schedule through the end of the plan year. Some exceptions may apply for qualifying life events, though.
If you're married or divorced, or you or your spouse change your legal residence, or you have or adopt a child, those can be qualifying events. If your spouse or a dependent passes away, that also qualifies, as do certain changes in work situations for you or your spouse, such as if your spouse loses his or her job. If you or your spouse become eligible or stop being eligible for Medicare or Medicaid, you can also make changes.
If you're unsure whether a particular event qualifies you to change your enrollment, talk to whoever manages the plans at your job. Your employer can also provide the necessary paperwork to make any changes you're eligible to make or direct you to how to do so with the company that manages the plan.
Leaving Your Job
If you quit or lose your job mid-year, the rules become more complicated. Generally, you must use any funds in your account while you're employed or lose them. You can, however, seek reimbursement for expenses incurred while you were employed even after you leave work. If you think you're quitting or might be fired soon, it can be a good idea to incur time-flexible health expenses like dental or eye care visits while you're still employed.
Some employers may also give you a grace period, like until the end of the last month of employment, to use the funds in your FSA. In some cases, you may also be able to continue contributions, with an extra surcharge under a law called COBRA, after you leave your job and continue to use the funds as normal.
- Wage Works: Changing Your Election Amounts Midyear
- Healthcare.gov: Using a Flexible Spending Account (FSA)
- IRS: Health Savings Accounts and Other Tax-Favored Health Plans
- Michigan Civil Service Commission: What Happens to My FSA If I Am Seasonal, Departed, Retired, Laid Off or on a Leave of Absence?
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.