Can I Change My FSA Election Mid-Year?
Uncover the specific conditions that allow you to modify your Flexible Spending Account election mid-year. Learn the process.
Flexible Spending Accounts (FSAs) offer a tax-advantaged method for individuals to allocate funds for eligible healthcare or dependent care expenses. These accounts operate on a plan year basis, and participants make their election for contributions during their employer’s annual open enrollment period. Once an election is made, it is considered irrevocable for the plan year.
The Standard Rule for FSA Elections
The fundamental principle governing Flexible Spending Accounts is known as the “use-it-or-lose-it” rule. This rule dictates that any funds elected for the plan year that are not spent on eligible expenses by the end of the year, or within a grace period if offered by the plan, are forfeited. This ensures compliance with Internal Revenue Service (IRS) regulations under Internal Revenue Code Section 125.
The election amount committed during the open enrollment period is locked in for the plan year to maintain the integrity of these tax-advantaged arrangements. Employers establish these plans with specific rules that reflect IRS guidance, ensuring stability in contributions and distributions. Consequently, without specific triggering events, employees cannot alter their pre-tax contribution amounts once the plan year has begun.
Circumstances Allowing Mid-Year Changes
While FSA elections are set for the year, specific events, known as Qualifying Life Events (QLEs), allow for mid-year adjustments. These events are recognized by the IRS as significant changes in an individual’s or family’s status, necessitating a change in benefit elections. A Qualifying Life Event provides an exception to the irrevocability rule, permitting an increase or decrease in FSA contributions.
A change in legal marital status is a common QLE, encompassing marriage, divorce, legal separation, or the death of a spouse. A change in the number of tax dependents also qualifies, such as through the birth of a child, adoption, or the death of a dependent. These changes directly impact the number of individuals whose expenses might be covered by an FSA.
Changes in employment status for the employee, their spouse, or a dependent can also trigger a QLE. This includes commencement or termination of employment, a change from full-time to part-time status, or a significant change in work schedule affecting benefits. Similarly, a dependent reaching an age limit, such as a child turning 26 for health FSA eligibility or turning 13 for dependent care FSA eligibility, constitutes a QLE. This change means the individual is no longer considered an eligible dependent for certain FSA purposes.
Other QLEs include a significant change in the cost or coverage of a health plan. A judgment, decree, or order, such as a divorce decree requiring a parent to provide health coverage for a child, can also be a basis for a mid-year FSA election change.
Steps to Adjust Your FSA Election
After experiencing a Qualifying Life Event, initiating a change to your FSA election requires prompt action and specific documentation. It is necessary to notify your employer or plan administrator within a defined timeframe, often within 30 days of the qualifying event. Some plans may allow up to 60 days.
To substantiate the QLE, you will need to provide specific documentation. For instance, a marriage certificate is required for a change in marital status, while a birth certificate or adoption papers are needed for a new dependent. A divorce decree, death certificate, or a letter from an employer detailing a change in employment status are also common forms of required evidence.
To formally request the adjustment, you need to contact your human resources department or benefits administrator. Many employers provide specific forms or an online portal through which these changes can be initiated. It is important to complete all required paperwork and submit it along with the supporting documentation within the specified timeframe.
The effective date of the change in your FSA election aligns with the date of the Qualifying Life Event, or it may take effect on the first day of the month following the event. This depends on the specific rules of your employer’s FSA plan. Reviewing your plan documents or consulting with your benefits administrator will provide clarity on the exact effective date and any specific rules applicable to your situation.