What happens to FSA accounts for a terminated employee corno virus problem - Spidell

What happens to FSA accounts for a terminated employee corno virus problem

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Message Board What happens to FSA accounts for a terminated employee corno virus problem

  • This topic has 2 replies, 3 voices, and was last updated 1 month ago by Mark Bole.
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    • #250243
      Everett Grandbois
      Participant

      <div></div>
      <div>This is a question from one of my clients who just lost their job because of</div>
      <div>the corno virus ?    Any thoughts of how to respond,   other than go out and spend a lot of money on over the counter drugs ?</div>
      <div></div>
      <div>Question for you.  I was laid off from my job this morning (last day: June 1).  I have a specific question about my flex spend accounts (medical + dependent care for 3.5 yo twins).</div>
      <div>I’m told that the money in those accounts disappears if not spent by my last day of work.  This seems illogical–when I decided how much to put into them for the year, it was for 12 months of activity with the kids (I’ve drained some from the first five months, but I was banking on bills for camp and second semester of school, for example).  Now that I don’t have 12 months to spend the money, it appears that I’ve set aside 12 months of estimated bills to be spent in five months.</div>
      <div></div>
      <div>Is there a provision where, if I’m terminated before the end of the year, I can either a) continue to spend money that I’ve already set aside in those accounts, or b) get provisionally what I haven’t spent back because I won’t be able to spend it?</div>

    • #250330
      Lynn Freer
      Participant

      Wow, that’s bad. The only thing new we can find is IRS Notices 2020-29 and 2020-33 I would talk to the plan administrator for the plan and see if there is any way they can get around this. Keep checking our website for updates as irs provides more extensions and relief

    • #250868
      Mark Bole
      Participant

      I’m told that the money in those accounts disappears if not spent by my last day of work. This seems illogical–

      Nevertheless, I believe that was what was agreed to when the open enrollment choice was made by the employee.  As for fairness, it works the other way too — if one has spent more out of the annual total than they have actually contributed by the date of termination (which is allowed), they do not have to pay back the extra amount.

      It should also help to ease the pain to realize that the amount stranded in the FSA was never taxed either FICA, fed or state income tax.  Even if the leftover balance was refunded, probably 20-30% or more would have to be deducted for tax first.

      As for daycare, they can still get an exclusion for the full amount reported in W-2 Box 10 if they spend at least that much, and a credit for any remaining qualified expenses they pay beyond that.

      I speak from personal experience, this happened to a member of my immediate family this year.

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