Flexible Spending Account upon Termination

Updated on March 11, 2013
A.F. asks from Albany, CA
11 answers

Ok my employer is not terminating me (regardless of what my title says), they are selling our line of business which is about 200 people. I have to use my flexible health care spending account up earlier than planned, but that is not a big deal. I did not set aside a huge amount this year and I need contacts. I do however have a co-worker that took the full $2500. Now my thinking is that you should only be able to spend/use what you put in before the termination date. My co-worker feels that the full $2500. is his to do with what he wants without consequences (to me this is morally wrong as it is not my money). Now set aside the debate as to whether it is right or wrong morally; is he able without repurcussions to spend his full amount?

No matter what I am sticking to what I feel is morally right and only spending what I have put in.


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So What Happened?

Thanks everyone I appreciate your insight. I guess it is his and mine to use. It just to me seems wrong as I will not be there to have it taken out of my paycheck. I guess that is the chance that they are taking. I am not sure what I will do at this point. We did have someone come and announce to us that they were selling us (well they read the press release to us right before releasing it). They answered the barest of questions, but many of the questions are about the new employer and their benefits and my current employer obviously can't talk about those. They said that more information would be coming in the next 2 -3 months and that representatives from the new company would be stopping by to see us.

As for Angela. I am not "sticking my nose" in his business. We are friends and it came up for discussion and he asked what I planned to do. I didn't tell him what to do with his money. I am not telling him what I found out unless he askes, because I told him I would check into it. If I found out that he could run into problems later I would tell him. That is what a friend does. They don't go on websites just to give nasty comments. If you can't be nice then keep your thoughts to yourself.

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answers from New York on

Yes - it's his to use but once you are termed, you can't use it any more. So, if he wants to use the full 2500, he better get going now. I don't think it is morally wrong at all. It's a risk both sides take. You could use the full 2500 on January 1 and quit on January 2 or they can term you in November and if you haven't spent anything, you lose it. I'd tell him to use it up and fast.

And yes, he could have spent the 2500 on January 1. Assuming it's all for medical. For dependent/child care expenses, you only get out what you put in.

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answers from Dover on

Technically speaking, a person can spend 100% of their flex spending $ at/after the beginning of the new year. So as an example, say you use 100% of your flex spending in January and then leave the company in February (for any reason) that is allowed. Likewise if you didn't use your money and you are at December (and therefore paid in all year) and leave the company...you don't get the money back and it is your employer's to keep.

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answers from Dallas on

i believe he has access for the full amount $2500 prior to his end date. Those expenses can only be used for legitimate health care expenses. If the end date is Sept 1, then all of the expenses must be incurred and paid by September 1 for them to be included in this years FSA. If he incurs expenses in November (although it is the same year) those are not eligible. I think i would request A Q and A session with HR on this issue for all employees.



answers from Chicago on

Actually, I recently looked into this. My job may be eliminated this year. MAY be. My son has expensive bills and we pretty much meet what i put in at the beinning of the year. I can make a claim against the FSA for the full amount in January. If I do lose my job, then I am not liable for the additional and it is not reported as income. Years ago at another job, I felt as you do. I made a claim only for the amount I had in the account and they sent me the full amount of my EOB.
If someone is terminated midyear and has money in the account, they do have until the end of the year to have expenses to claim and can wait until the deadline in March to send it in.



answers from San Francisco on

That's his money, not yours. I don't even know why your making it your business. Stay out of it, it's none of your business.



answers from Santa Barbara on

I worked for a global testing laboratory and my division was dissolved in August. I had spent more than I had contributed and brought that up. They said no worries, we were clear. I don't know if this was because it was a ginormous company or it was part of the termination process. They would not take reimbursement.


answers from Kansas City on

Yes...he can. Last year I took too much out...lost about $500 because we all had glasses, all our teeth work done, no other medical expenses. It happens both ways. (of course now I have to have more work done on my teeth)

I can use all $2500 on that now, if I needed to and for whatever reason may occur and I leave my company I would not have any repercussions.



answers from Salt Lake City on

I had a medical spending account at the last office I worked at. I had used all of when I was terminated. I had used all of it by April. It was a hard year. They money I had used but not paid into the system was taken out of my last paycheck. The owner claimed he had already cleared it with the company and that that money was his to take out. The very next day he called my house and told me to come get the check because it turns out he has no right to keep that money. He was very angry about it because it was a small company so it came out of his paycheck. If it's possible, I'm sure he changed the contract with the company that managed the medical account.
The $2500 is his the first day it is available for him to use it. Had I worked at that company all year as I had planned, the money would have been paid back. He let me go. So I don't feel bad about using the money. Same with your friend, had he worked for the same company all year the money would be paid back. It was not his choice for the company to be bought out or for the plan to change. If he took the money planning to quit after he used it, then I would agree with you regarding the morality of the issue.



answers from Houston on

My understanding is it's based on IRS codes. Flexible Spending Accounts are regulated by the IRS.

Any money left in the account unspent at the end of the plan year goes to the company, per the IRS, for administrative costs and to cover those people who spend it all and leave before it's all recouped. It's part of the risk on both parties with these accounts.

Your friend, does of course, have to be able to prove that the entire 2500 was spent on eligible expenses, though.



answers from Portland on

My daughter changed employers and I think, tho I'm not sure, she continues to use her flexible spending account because it's the money she contributed pretax. She has a prepaid VISA or MC issued with that amount on it.

I would check with human resources to be sure she understands the procedure. If this person isn't knowlegeble and confident then I'd call the insurance company directly. My daughter often did that when she had questions.

I would think that she would have the option of taking out the money. She would have to pay taxes on it but she wouldn't lose it. As you said, it's her money.

Or.....is this the amount that the company put into the account for her? If so it's not hers. It's hers to use but when terminated it does revert back to the company because, perhaps, the contract with the insurance company is also terminated.



answers from Milwaukee on

Your co-worker is right. It's his decision on how he feels about it morally.

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