Does FSA Transfer to New Employer?

A Flexible Spending Account (FSA) allows individuals to set aside pre-tax money from their paycheck to pay for eligible out-of-pocket healthcare or dependent care expenses. These employer-sponsored accounts offer a tax advantage by reducing taxable income. However, it is important to understand that an FSA is tied to your employment, meaning funds generally do not transfer from one employer to another. This structure necessitates careful planning when transitioning between jobs to manage existing FSA balances and consider new enrollment opportunities.

Managing Your FSA After Leaving a Job

When employment ends, understanding options for your existing Flexible Spending Account is important to avoid forfeiting unused funds. Your ability to use funds depends on the type of FSA and your former employer’s plan rules. Unspent FSA funds are generally forfeited back to the employer, known as the “use-it-or-lose-it” rule.

Many plans offer a “grace period,” providing an extension of up to two and a half months after the plan year ends or termination. This allows you to incur new eligible expenses and use your remaining FSA balance. A “run-out period” is the timeframe allowed to submit claims for expenses incurred before your employment ended or the plan year concluded. This period is around 90 days. The run-out period is for submitting past claims, not for incurring new ones.

For Health FSAs, COBRA may offer a continuation option. If your account is “underspent” (contributions exceed reimbursements at the time of your qualifying event), you may be eligible to continue your Health FSA under COBRA. Electing COBRA means paying the full cost of contributions, plus an administrative fee up to 2%. While general COBRA can last up to 18 months, Health FSA COBRA extends only through the end of the plan year of termination. If your plan allows for a carryover of unused funds, these amounts may be accessible for the full COBRA period.

Dependent Care FSAs (DCFSAs) have different rules upon job termination. Unlike Health FSAs, Dependent Care FSAs do not have a COBRA continuation option. Reimbursement is only available for expenses incurred up to your date of separation from employment. Some plans might include a “spend-down” provision allowing submission of dependent care expenses incurred after termination, but this is not universal. Any funds remaining in a Dependent Care FSA for expenses incurred after your termination date are forfeited. Utilize all available DCFSA funds for eligible expenses before your last day of employment.

Enrolling in a New FSA with a New Employer

Upon starting a new job, any Flexible Spending Account you had with your previous employer is distinct from a new FSA offered. If your new employer offers an FSA, you will need to make a fresh election to participate.

Eligibility to enroll in a new FSA typically occurs during your new employer’s open enrollment period. Alternatively, you may be able to enroll immediately upon hire as a qualifying life event. At this time, you will determine the amount you wish to contribute for the remainder of the plan year.

For Health FSAs, the annual contribution limit resets with each new employer, meaning you can elect the full yearly maximum with your new company, regardless of contributions made at a prior job.

However, for Dependent Care FSAs, there is an individual calendar year maximum that applies across all employers. For instance, the limit is $5,000 for single filers or those married filing jointly, and $2,500 for those married filing separately. If you had a DCFSA with a previous employer in the same year, you must consider those contributions to ensure you do not exceed this IRS-imposed individual limit when making a new election. It is important to review the new employer’s specific plan document, as rules regarding grace periods, carryovers, and run-out periods can vary significantly between different plans.