When Does Your Flexible Spending Account (FSA) Start?

A Flexible Spending Account (FSA) is an employer-sponsored benefit that allows individuals to set aside pre-tax money for eligible healthcare or dependent care expenses. This arrangement helps reduce taxable income, offering a tax advantage. FSAs help manage out-of-pocket costs for services and products not covered by typical insurance plans.

Enrollment Timing

Participation in a Flexible Spending Account begins with specific enrollment opportunities throughout the year. The most common period is annual open enrollment, when employees elect their FSA contributions for the upcoming plan year. This window allows individuals to decide whether to participate and how much to contribute based on anticipated expenses.

New employees often have a special enrollment period when they first join a company, usually within a defined timeframe after their start date. Beyond these standard periods, certain qualifying life events also allow for FSA enrollment or changes to existing elections. Such events include marriage, the birth or adoption of a child, or divorce.

Contribution Commencement

Once enrolled in an FSA, contributions begin through pre-tax payroll deductions directly from an employee’s gross pay. This reduces taxable income. For most participants, deductions start with the first pay period of the new plan year.

For new hires or individuals enrolling due to a qualifying life event, contributions commence with the first pay period following their enrollment’s effective date. The total annual election amount is spread evenly across the remaining pay periods within the plan year.

Accessing Available Funds

The timing of when FSA funds become available depends on the account type. For a healthcare Flexible Spending Account, the full annual election amount is available on the first day of the plan year, even if not fully contributed through payroll deductions. This “front-loading” means participants can access their elected benefit immediately for eligible medical, dental, or vision expenses.

In contrast, a Dependent Care Flexible Spending Account operates on a reimbursement basis. Funds can only be reimbursed up to the amount already contributed through payroll deductions. Funds are often accessed via a dedicated debit card or by submitting claims.

Understanding the Plan Year

The plan year defines the operational cycle for an FSA, determining when funds can be used and when new elections can be made. This established period dictates the timeframe for incurring eligible expenses that can be paid or reimbursed by the FSA.

To mitigate the “use-it-or-lose-it” rule, some FSA plans offer a grace period, typically extending up to 2.5 months into the new plan year. This extension allows participants to use remaining funds from the prior year for expenses incurred during this additional timeframe. Additionally, a run-out period is often provided after the plan year ends, allowing participants extra time to submit claims for expenses incurred within the previous plan year.

A change in employment status, such as leaving a job, generally impacts the ability to use FSA funds. Typically, an employee’s access to their FSA funds ceases on their last day of employment, or shortly thereafter, unless specific arrangements or COBRA continuation options are available. This means the benefit period for accessing funds can effectively end sooner than the original plan year.