Can't carry over an FSA. Right. So -- then what?
November 18, 2014 10:43 AM Subscribe
If I contribute $2500 to a Flexible Spending Account (FSA) in 2015, and end up spending only $2000 of it on health costs -- what happens to the other $500?
You lose it. It stays in your company's bank account. One year I bought massive quantities of Band-Aids to avoid losing my last $100.
Check with your employer, though; they have the option starting this year to allow you to carry some of it over.
posted by something something at 10:47 AM on November 18, 2014 [1 favorite]
Check with your employer, though; they have the option starting this year to allow you to carry some of it over.
posted by something something at 10:47 AM on November 18, 2014 [1 favorite]
Response by poster: Thanks, Slinga. I happened to specify $500 by chance -- but OK, say I don't spend $750, of which I roll over $500. My question is What happens to the $250? Money doesn't just disappear, right?
On preview: It goes into my employer's account, even though they contributed nothing? It's a straight-up gift to my boss?
(My Q isn't about what to do this year. It's about where a sum of money goes.)
posted by LonnieK at 10:47 AM on November 18, 2014
On preview: It goes into my employer's account, even though they contributed nothing? It's a straight-up gift to my boss?
(My Q isn't about what to do this year. It's about where a sum of money goes.)
posted by LonnieK at 10:47 AM on November 18, 2014
What they said. And I think you had till the tax filing deadline (April 15) to re-characterize expenses from the previous year to spend down your FSA.
posted by RedOrGreen at 10:48 AM on November 18, 2014 [1 favorite]
posted by RedOrGreen at 10:48 AM on November 18, 2014 [1 favorite]
It depends. Some FSAs allow the money (or part of the money) to roll over to the next year fully. Some allow the 2015 contributions to be spent up until March 31 2016. Some just take the money from you.
The good news is that you don't have to spend 100% of the money to make it worthwhile. Here in sunny California where my margin tax rate is about 35% (or 38% if I make enough I guess) I'd only have to spend about $1625 of $2500 to make it worth my time. You're still better off in terms of taxes spending $2000 of $2500.
posted by GuyZero at 10:48 AM on November 18, 2014 [1 favorite]
The good news is that you don't have to spend 100% of the money to make it worthwhile. Here in sunny California where my margin tax rate is about 35% (or 38% if I make enough I guess) I'd only have to spend about $1625 of $2500 to make it worth my time. You're still better off in terms of taxes spending $2000 of $2500.
posted by GuyZero at 10:48 AM on November 18, 2014 [1 favorite]
Oh, if the question is where does it go - the FSA program administration company keeps it. That's how they make money. My understanding is that they don't charge anything upfront to run the program for your company but they'll make money through unspent contributions.
posted by GuyZero at 10:49 AM on November 18, 2014 [1 favorite]
posted by GuyZero at 10:49 AM on November 18, 2014 [1 favorite]
Response by poster: OK so now we have 2 answers:
-- It goes to my employer.
-- It goes to the program administrator.
Which?
posted by LonnieK at 10:51 AM on November 18, 2014 [1 favorite]
-- It goes to my employer.
-- It goes to the program administrator.
Which?
posted by LonnieK at 10:51 AM on November 18, 2014 [1 favorite]
It might depend on the company's benefit structure, but I know that my company, a large-ish family owned corporation, keeps the money in an account used to offset administrative costs. FSAs are a risk for employers - all the money is available for employees to use at the beginning of the year despite the fact that the contributions are taken out over the course of the entire year. If someone uses all their FSA money in January and then resigns, the company doesn't recoup any of those contributions that should have come throughout the remainder of the year. So I don't think employers are necessarily coming out ahead on the deal.
posted by something something at 10:58 AM on November 18, 2014 [2 favorites]
posted by something something at 10:58 AM on November 18, 2014 [2 favorites]
From Slate, 2010:
"It's up to your boss. One-third of employees end up with some leftover cash in their accounts, and employers have a few choices for what they can do with it. They can donate the money to charity, split it up among the workers who are participating in your health plan, or use it to offset the costs of administering the program. Under no circumstances can your boss give your unused money back to you. (That would invalidate the fund's tax-exempt status.) According to IRS rules, a business can also give its employees a 2½-month grace period for spending the dollars that were set aside. But this is strictly optional, and not every employer is so generous."
So it might go a bunch of places. So I was sort-of wrong: it might go to the administrators. It might not.
posted by GuyZero at 10:59 AM on November 18, 2014
"It's up to your boss. One-third of employees end up with some leftover cash in their accounts, and employers have a few choices for what they can do with it. They can donate the money to charity, split it up among the workers who are participating in your health plan, or use it to offset the costs of administering the program. Under no circumstances can your boss give your unused money back to you. (That would invalidate the fund's tax-exempt status.) According to IRS rules, a business can also give its employees a 2½-month grace period for spending the dollars that were set aside. But this is strictly optional, and not every employer is so generous."
So it might go a bunch of places. So I was sort-of wrong: it might go to the administrators. It might not.
posted by GuyZero at 10:59 AM on November 18, 2014
My understanding was that your employer keeps the money, but it balances out because you're allowed to spend the entire $2500 before you actually reach $2500 worth of paycheck contributions. (Which is the difference between an FSA and an HSA, which you can only spend as you make the contributions.)
posted by bleep at 11:03 AM on November 18, 2014
posted by bleep at 11:03 AM on November 18, 2014
Your particular FSA should have a Summary Plan Description that details this. Mine states:
"Forfeitures will be used to offset experience losses and defray reasonable administrative costs under the Plan. Forfeitures under the Health Care FSA will not, however, be used to defray reasonable administrative costs under the Dependant Care FSA portion of the Plan. Any remaining amounts will be returned to participants as reduced required premiums, increased coverage or as a cash refund or, for forfeitures under the Dependent Care FSA portion of the Plan, returned to [Company], in any case as determined from time to time by the plan administrator in its discretion."
Under my plan, all expenses must be incurred in the applicable year, but you can file claims through March of the following year.
posted by melissasaurus at 11:12 AM on November 18, 2014
"Forfeitures will be used to offset experience losses and defray reasonable administrative costs under the Plan. Forfeitures under the Health Care FSA will not, however, be used to defray reasonable administrative costs under the Dependant Care FSA portion of the Plan. Any remaining amounts will be returned to participants as reduced required premiums, increased coverage or as a cash refund or, for forfeitures under the Dependent Care FSA portion of the Plan, returned to [Company], in any case as determined from time to time by the plan administrator in its discretion."
Under my plan, all expenses must be incurred in the applicable year, but you can file claims through March of the following year.
posted by melissasaurus at 11:12 AM on November 18, 2014
I don't know about your situation, but at my company, I believe we have until the end of March of the following year to use the funds.
posted by JimBJ9 at 11:20 AM on November 18, 2014
posted by JimBJ9 at 11:20 AM on November 18, 2014
You have until March 31 of the following year to submit the claims (allowed by the Tax Code, and true at every employer I've ever worked at).
posted by holborne at 12:09 PM on November 18, 2014
posted by holborne at 12:09 PM on November 18, 2014
My understanding was that your employer keeps the money, but it balances out because you're allowed to spend the entire $2500 before you actually reach $2500 worth of paycheck contributions
This is exactly the reason why.
In a previous job I had to spend the entire FSA amount early in the calendar year because of a surgery. For unconnected reasons I quit the company in March. The difference in what I spent versus what was collected so far was almost $1800, and my (old) company tried to claw it back out of my last paycheck. I filed a claim with the Dept of Labor in my state and got it back.
The law and the IRS don't allow FSA clawbacks to happen. You can spend it all on January 1 and your employer can't say a thing. That's the flipside of "use-it-or-lose-it", something most employers won't bother to mention for obvious reasons.
So keep that in mind, kids.
posted by JoeZydeco at 1:38 PM on November 18, 2014 [10 favorites]
This is exactly the reason why.
In a previous job I had to spend the entire FSA amount early in the calendar year because of a surgery. For unconnected reasons I quit the company in March. The difference in what I spent versus what was collected so far was almost $1800, and my (old) company tried to claw it back out of my last paycheck. I filed a claim with the Dept of Labor in my state and got it back.
The law and the IRS don't allow FSA clawbacks to happen. You can spend it all on January 1 and your employer can't say a thing. That's the flipside of "use-it-or-lose-it", something most employers won't bother to mention for obvious reasons.
So keep that in mind, kids.
posted by JoeZydeco at 1:38 PM on November 18, 2014 [10 favorites]
People often seem to make comments to me that this is somehow the company's way of making money and it is shady on behalf of the company but the company can't make money off of this. Program expenses, charity, or split evenly between participants.
The ONE year that I worked for a company that had money left over after paying the program expenses it was about $82, we donated that to charity, splittting $82 between 400 program participants was not going to feasible. Notice how I say one year? Running an FSA program costs money and you are always going to be out amounts for the people who spend before they leave, it is pretty rare for there to be a positive balance on the company's end.
posted by magnetsphere at 2:06 PM on November 18, 2014 [1 favorite]
The ONE year that I worked for a company that had money left over after paying the program expenses it was about $82, we donated that to charity, splittting $82 between 400 program participants was not going to feasible. Notice how I say one year? Running an FSA program costs money and you are always going to be out amounts for the people who spend before they leave, it is pretty rare for there to be a positive balance on the company's end.
posted by magnetsphere at 2:06 PM on November 18, 2014 [1 favorite]
I usually spend all of mine, but the few years that I got down to the end and still had a balance, I spent it on things like a prescription pair of fancy sunglasses ($400+) or several boxes of contacts and/or new glasses. Diabetic supplies are another option. The rules have changed in recent years so things like bandaids, contact solution, etc. are no longer options. Refill all medications that you take. Mine has always been spend it or lose it. Twice I have changed jobs owing a balance due to spending it all early in the plan year.
posted by tamitang at 3:32 PM on November 18, 2014
posted by tamitang at 3:32 PM on November 18, 2014
Response by poster: Well, my Q is answered. This is an eye-opener. Great info everyone.
posted by LonnieK at 6:45 PM on November 19, 2014
posted by LonnieK at 6:45 PM on November 19, 2014
This thread is closed to new comments.
In the past you'd have to find stuff to spend it on at the last minute.
posted by Slinga at 10:46 AM on November 18, 2014 [5 favorites]