What Are Qualifying Life Events and How Do They Affect My FSA?
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Normally, you can only enroll in or make changes to a Flexible Spending Account (FSA) during your employer's open enrollment period. However, if you experience a qualifying life event (QLE), you may be allowed to start an FSA, change your contribution amount, or cancel your FSA.
A QLE can affect the type of coverage and contribution for health insurance, so it's important to understand what situations the FSA considers. While you can't change your FSA contribution any time you want, FSA qualifying events mean you can change your coverage outside of the open period.
What Is an FSA Qualifying Event?
The event must align with the IRS requirements for a QLE and regulations in Section 125 of the Internal Revenue Code. When you experience a qualifying life event, you can make changes or enroll in a health insurance plan outside the annual open enrollment period.
Changes in the following areas fall under the definition of a qualifying life event:
- Number of dependents
- Marital status, either a divorce or a marriage
- Employment status — this includes hiring or termination and applies to employees, spouses, and dependents, which may affect eligibility
- Status of a dependent, for example, if a dependent attains a certain age
- Becoming entitled to Medicaid or Medicare, which only applies to health FSA
- A judgment, court order, or decree that relates to a child's medical coverage, like a qualified medical child support order (QMCSO)
- Residential moves that affect coverage
- The death of your spouse or dependent
- Cost or coverage, which only applies to dependent care assistance plan (DCAP) changes, such as if you need to change your provider or rates, or need additional care for dependents
The election change must be consistent with the qualifying event. For example, a spouse's death wouldn't qualify for an increase in your coverage. The change and the event must make sense and correlate with one another.
Can I Change My FSA Contribution During the Year?
Maximizing your payroll allocations throughout the year is pivotal to reducing your bottom line, so knowing if you can change your FSA contribution at any time is essential. You can change your election and contribution amount as many times as needed during the open enrollment period. The changes that you have at the end of the season are final.
Unfortunately, outside of the open enrollment period, you are only allowed to make changes to your contributions if you experience a qualifying life event, and if your plan allows such changes. Your plan should describe what events will affect your coverage.
When Can I Change My Payroll Allocation?
Your payroll allocation determines how much money from each paycheck goes toward your FSA. While you typically make this choice during open enrollment, certain life changes may give you another chance. Here's when you can make updates to your FSA
Health Coverage Loss
Losing other health coverage, such as through a spouse's plan or government program, may qualify you to make changes to your healthcare FSA. The following changes are events that alter health coverage:
- A change in employment status that causes a loss in coverage and affects eligibility for health insurance benefits(for yourself, a spouse, or one of your dependents)
- If an employee is no longer eligible for Medicare, Medicaid, or CHIP
- A change in a dependent's eligibility, such as a child turning 26 and losing coverage through a parent's health plan, and no longer qualifies for coverage under a Dependent Care FSA (DCFSA)
Household Changes
Events like marriage, which adjust your household income or expenditure, can affect your FSA eligibility or contribution needs. These changes in a member's household can alter allocation:
- A change in legal marital status, including marriage, legal separation, divorce, or death of a spouse
- The birth of a child, adoption of a child, or placement for adoption
- The death of a dependent
Residence Changes
Moving to a new county may be considered a qualifying event if it affects your access to eligible care, particularly for dependent care FSA. More than simply moving house, the following are the only residence changes that affect FSA election:
- A change in ZIP code or country of residence
- A student's change in location to attend school
- When a seasonal worker changes the location where they work and live
- A move from a transitional house or shelter
Additional Qualifying Events
Other situations, like a change in employment status or a court order affecting coverage, may also qualify. Each event must be consistent with the FSA change you want to make. The following events can also change your payroll allocation:
- A change in the number of tax dependents
- An increase or decrease in income that changes the type of coverage qualification
- Becoming a U.S. citizen
- Any COBRA qualifying events, decrees, judgments, or court orders
Frequently Asked Questions
An FSA can be a smart way to save on healthcare or dependent care costs, but it has specific rules. Here are answers to common questions to help you better understand how an FSA works, when changes are allowed, and what to do in different situations:
What Steps Should I Take to Report a Qualifying Life Event?
If you experience a QLE or have one coming up, contact your FSA administrator within 30 days of the occurrence, and they will make the changes for you. It's important to remember that only some employers offer changes halfway through the year. Speak to your administrator to get clarity on the regulations surrounding your account.
Always document the event and contact your HR or benefits administrator as soon as possible to ensure you don't miss your window to act. Once you've submitted your documents, confirm the changes and keep copies of all documents with confirmations for your records.
What if I Don't Qualify for a Special Enrollment Period?
Without a special enrollment period (SEP), you can't make mid-year changes, so you must keep contributing the amount you choose during open enrollment. If you miss an SEP, you have to wait until the next open enrollment period, which happens once a year. Changes you make will take effect at the start of the next plan year.
Will Unused Funds Be Refunded If I Reduce or Cancel My FSA?
In most cases, no. Unused funds will not be returned if you reduce or cancel your FSA during the year. If you cancel due to a QLE, you may still be able to use the funds you contributed before the cancellation date, but you won't receive a refund for any unused balance.
Dependent Care FSA works on a use-it-as-you-go basis. You can only claim what you've already contributed. If you stop contributing after a QLE, you can still claim eligible expenses up to your remaining balance. Still, any unclaimed funds at year-end are forfeited unless your plan has a grace period or carryover feature.
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