FSA limits on usage (not just contributions)?

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yules
Posts: 635
Joined: Wed Nov 27, 2019 9:31 am

FSA limits on usage (not just contributions)?

Post by yules »

Bogleheads,

I am in the process of transitioning to a new job and have a question about how an Health FSA works.

It's a bit complicated, but probably nothing that hasn't happened to someone before.

I know that the 2022 limit for FSA contributions to HFSAs is $2,850 for the calendar year. (As stated in many places, but specifically by the IRS in Rev. Proc. 2021-45 [https://www.irs.gov/pub/irs-drop/rp-21-45.pdf])

But is there limit on usage in a calendar year?

Here's the background for my question:

Former Employer (FSA plan year begins 3/1)
1) I have contributed at the the max rate for the month through 8/31 ($237.50 x 8 months = $1,900).
2) I used $550 before 3/1 (attributed to the 3/1/21-2/28/22 plan year)
3) I understand that I could use the full $2,850 for the current (3/1/22-2/28/23 plan year) even though the whole amount has not been deducted.
4) That will mean that I have spend $3,400 in FSA dollars from my (soon to be) former employer's FSA plan

New Employer (FSA plan year begins 1/1)
1) I will be eligible for their plan on 9/1.
2) Can I elect $2,850 for the plan year 1/1/22-12/31/22?
3) And then can I use another $2,850 in FSA dollars?
4) My 2022 contributions would by within the limit of $2,850.
5) But my actual FSA use in 2022 would be $6,250.

I can't find anything that has rules around FSA usage, only contributions. It feels like if I do all the above, I am abiding be the letter of the law, but this also feels like a strange loophole.

Thanks for any thoughts!
Yules
Duzz78
Posts: 158
Joined: Sat May 15, 2021 9:10 pm

Re: FSA limits on usage (not just contributions)?

Post by Duzz78 »

yules wrote: Mon Aug 15, 2022 1:32 pm Bogleheads,

I am in the process of transitioning to a new job and have a question about how an Health FSA works.

It's a bit complicated, but probably nothing that hasn't happened to someone before.

I know that the 2022 limit for FSA contributions to HFSAs is $2,850 for the calendar year. (As stated in many places, but specifically by the IRS in Rev. Proc. 2021-45 [https://www.irs.gov/pub/irs-drop/rp-21-45.pdf])

But is there limit on usage in a calendar year?s
In your case your limit of usage is your last date of employment with you current employer. Once your employment ends, usage of your FSA funds ends as well. Any unused FSA funds in your account on the last date of employment is forfeited to the employer.

You can spend all elected FSA funds prior to you last date of employment. You do have 90 days to submit any claims for FSA-eligible expenses you did incur while in their employment.

This why an FSA is known as a "use-it or lose-it" account. You either use all the elected amount by calendar year end, or in your case, by last day of employment or you lose (forfeit) what you did not use.
yules wrote: Mon Aug 15, 2022 1:32 pm Bogleheads,

I am in the process of transitioning to a new job and have a question about how an Health FSA works.

New Employer (FSA plan year begins 1/1)
1) I will be eligible for their plan on 9/1.
2) Can I elect $2,850 for the plan year 1/1/22-12/31/22?
3) And then can I use another $2,850 in FSA dollars?
4) My 2022 contributions would by within the limit of $2,850.
5) But my actual FSA use in 2022 would be $6,250.
If you new employee offers an FSA, you are eligible to contribute up to the annual limit at your new employer. You can use all of that you elected at your new employer. You have until December 31 to spend the amount you elected with this employer for calendar year 2022. Note your plan or employer may choose to allow you to roll over up to $570 in 2023 or may provide for a grace period of two and a half months. This is optional. You should verify what the company policy is for this.
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