Did you know that a layoff could jeopardize the funds in your flexible spending account (FSA)? In most cases, when an employee is let go, they are claim reimbursement for qualified medical expenses that are incurred while they’re still covered by their employer’s benefits plan. But once that expires, you may be out of luck.
Given that benefits coverage often ends at the end of the month during which the layoff occurs, you might have to act quickly. Alternatively, you may be able to extend your health coverage under the Consolidated Omnibus Reconciliation Act of 1985 (commonly referred to as COBRA coverage) which should extend your FSA eligibility.
On the flip side, you’re allowed to spend money out of your FSA faster than you put it in. Thus, you may have a negative balance in your FSA upon termination. While it’s possible that your (former) employer will ask for reimbursement of the overage, we’ve discussed this here before, and it’s not clear that you have to comply.