Comments on: Your Take: The FSA Loophole

By: Cooper

Cooper — Sun, 17 Apr 2011 16:04:36 +0000

If you think that is stealing, then what is it called if the roles were reversed and your small non profit was pocketing the extra money not used by the employee?

By: anne

anne — Fri, 25 Mar 2011 19:48:21 +0000

It is steeling pure and simple. Our CEO did it in his last week! We are a small non profit so we will eat the loss. He was also the one who put the limit on there. You chose your limit, if you chose to put too much a way that is a liability you take when you lose it.

By: Marcy

Marcy — Fri, 18 Mar 2011 16:11:48 +0000

Can someone direct me to the IRS ruling that states that an employer cannot withhold any money that was paid out over and above the FSA Medical contributions at the time an employee would leave the company. For instance, an employee signs up to have $100 per pay for 26 pays withheld. The first of February, they turn a bill in for $2600 but have only contributed $200 so far. They leave the company on March 1st, so you have only been able to withhold $400 total of the $2600 that you have withheld. From what I am reading above, the employee leaves the company with $2200 in their pocket and the employer cannot withhold any of that out of the last paycheck. I can’t find anything that tells me that is an IRS ruling. Any help would be greatly appreciated.

By: Robert

Robert — Thu, 03 Feb 2011 21:34:54 +0000

I found out about the loophole by accident. I set my funding to 2400 (200/month) and was laid off in April. I effectively ended the 2010 year with a negative $1500 balance. It just happened, it was not my intent. People end up on either side of the fence: They use up most or all of their allocation before full funding and get terminated because they have early uses of the funds, and then there are those that get terninated toward the end of the year, have a large balance because most of their expenses are at the end of the year, and they loose it all. Use it or lose it is a two way street, overfunding and the employee loses it and forfiets, underfund, and the employtee gains because it is a reverse forfiet. I don’t feel bad, and the only guilt I have have is that I didn’t make it the full $5K. The business knows the risks of offering this type of account, and I read that on average 14% is forfieted and this is a major windwall for the business. So who cares if the business loses sometimes, that is a business risk, and will usually hurt the business when they do large layoffs in the early part of the year.

By: Cyber4owl

Cyber4owl — Sat, 25 Sep 2010 03:05:42 +0000

This is weird.

Unless your company cancels your health insurance right on the last day of your employment, you should still have medical insurance from your old employer until 9/30.

Since that is the case, you should be able to access the remaining $500 of your FSA.

You should take this up with your CPA or a lawyer.

By: Cyber4owl

Cyber4owl — Sat, 25 Sep 2010 03:03:34 +0000

I might be wrong E McCord but I thought the employer could not take a negative balance out of your paycheck.

What if the situation was reversed? What if you had a surplus balance in your FSA and you left your job? Would you be entitled to get that surplus refunded to you? I doubt it because this is not allowed by rules governing FSA.

It might be too late I would follow up on this with a lawyer

By: Other side of the loop hole

Other side of the loop hole — Fri, 24 Sep 2010 14:00:38 +0000

I just quit my job on 15th of Sept to start a new job. I contributed almost $1000.00 into my FSA account for my wife and myself. After leaving the job, my wife went to the Doctors, and I tried to submit the co-pay. The system would not accept anything after the last day of my employment with my old company. I had close to $500 left remaining in the account. After speaking to the Pay Checks, the customer rep. indicated how much ever money was left in the account will be given back to my old company (who were cheap). Now this is a serious issue, as this loop hole is never told by any HR team. Now I definitely will be “Miss using” the new FSA account. To put it simple I want my hard earned money back, and for me $500 is hard to come by.

By: E McCord

E McCord — Fri, 26 Mar 2010 02:02:17 +0000

I read several articles about this loophole. I never intended to take advantage of it, but circumstances happened to put me in a positin to leave a job after three months of the year and getting reimbursed for my dental work.

However, my employer took the remaining negative balance of my FSA out of my next to last paycheck.

What right do they have to do that? How do I get it back?

By: CyberOwl

CyberOwl — Mon, 10 Nov 2008 03:34:27 +0000

Just a follow-up to my situation.

I had a balance of $3K in my FSA. I quit in July and found out that I had to spend the balance by my last date at my former job. I could continue it by paying for the FSA monthly payments thru Cobra.

So I paid $450 for a month for the FSA payments.

But I spent my balance and more. I got orthodontal work that totalled $4700. My max FSA contribution per year was $5K. So I got an extra $1250 in medical FSA spending ( $4700 – $3K – $450 ).

Nice loophole!

By: Electricute

Electricute — Sun, 09 Nov 2008 20:01:56 +0000

I have to agree with posters like Peter, CK, Amy and FiveNickel.com. I found out about the “loophole” simply by calling my benefits hot line and asking questions. Our conversation and a bit of critical thinking led me to ask the right questions and they verified this situation.
Many people feel this is an ethical issues but I don’t see it like that at all.
I plan to take 100% advantage of this plan feature next year. I do not feel guilty, I feel educated.

I have also learned from this Blog that it is always SAFEST TO USE YOUR MONEY TOWARDS THE BEGINNING OF THE YEAR. Especially when the job market is down and layoffs are common. Everyone reading this blog should take note of that! Let other peoples misfortune be a lesson learned to us all. (Sorry to hear about that too! I dont agree with use-it-or-lose-it but that is a different issue)

Kevin, I am really trying to see your side of it because I am big on ethics…but like I said, I don’t feel at all as if this is an ethical issue, and I do not feel bad about creating my legal exit strategy that was verified legit by my benefits provider.

Thank you all for the discussion. Keep it coming!

By: Cyberowl

Cyberowl — Fri, 31 Oct 2008 18:45:39 +0000

Rob,

No you cannot. I had the same question and the Cobra people said that I could not pay COBRA premiums with my FSA balance.

By: Rob

Rob — Fri, 31 Oct 2008 15:21:46 +0000

Can I pay my COBRA premiums with the balance of my FSA account

thanks

Rob

By: Anonymous

Anonymous — Mon, 13 Oct 2008 20:11:12 +0000

I need some help on this subject ASAP.
I pledged $2,000 for this years’ FSA, while working for the City.
In January, I had an emergency room expense, using $590 from my FSA.
I got laid off on February 14, having only put $260 into the FSA via salary deductions.
I didn’t hear anything about my negative FSA balance, upon leaving.
I was unemployed for 6 months and get hired back by the City. I pledged another $250 for the remainder of the year.
I’ve been there 2 months now and I got a letter yesterday telling me I had a negative balance and they were going to garnish my checks for the remainder of the year to recoup there loss. End of story, no discussion.
I’m questioning whether they can take it upon themselves to just “garnish” my check without my authorization and whether they are even able to expect reimbursement of these funds.
Please help me..

By: Peter

Peter — Mon, 08 Sep 2008 18:44:06 +0000

I believe that is dependent on your employer. It is not an IRS rule. They employer is allowed to offer just FSA Cobra without the full health insurance package, but they do not have to.

By: Cyberowl

Cyberowl — Mon, 08 Sep 2008 18:26:06 +0000

I have to enroll for Cobra and FSA Cobra, right?

I don’t think I can just sign up for FSA Cobra without signing up for Cobra. I think it’s a package deal.