What Happens to My FSA If I Quit or Lose My Job?
Key takeaways:
A flexible spending account (FSA) is an employer-sponsored benefit that offers a tax-advantaged way to pay for qualified medical expenses. Generally, you must use funds within the plan year or before your employment ends, whether through termination or resignation.
If you quit or lose your job, any unspent funds in your FSA go back to your employer. However, FSA dollars can be spent on dental, vision, prescription medication, and other eligible expenses before you leave your job.
You might have the option to continue using your FSA through Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage. But you can’t use the funds to pay for COBRA premiums.
Table of contents
A flexible spending account (FSA) is an employer-sponsored health benefit that allows you to pay for qualified medical expenses with tax-free dollars. You can use it for expenses such as over-the-counter medications and prescription eyeglasses.
Unlike a health savings account (HSA), your FSA is tied to your job, and your employer owns and manages the account for you. So if you quit or lose your job, you may lose access to your FSA benefits.
Managing your FSA funds while you’re still working for your employer will ensure you don’t forfeit any benefits. Below, we’ll explain how FSAs work and offer some options to help you maximize your FSA dollars.
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Where does unused FSA money go?
Since your FSA has a “use it or lose it” feature, you’ll lose your benefits if you no longer qualify for them. You typically can’t take your FSA with you if you switch jobs or leave the workforce.
Generally, if you leave your job, any remaining funds in your FSA will go back to your employer. This is also the case if you don’t spend all your FSA dollars within the plan year. For example, if your FSA balance is $2,000 and you use $1,100 for a root canal, the unused $900 will go back to your employer if you don’t spend it before leaving your job or the plan year ends.
However, if you sign up for Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage through your employer, you would be able to use the remaining $900 for qualified medical expenses before the end of the plan year.
Can you continue using your FSA if you sign up for COBRA after you lose your job?
Yes, if you have coverage through COBRA, you can continue to use your FSA. COBRA allows you to maintain the health insurance coverage you had through your employer. But it costs more because you’re not splitting the premiums.
Also, you’ll need to continue making contributions to your FSA, just as if you were still employed. And you cannot use your FSA funds to pay your COBRA premiums.
How COBRA works with your FSA
Signing up for COBRA allows you to continue accessing your FSA funds instead of forfeiting them to your employer. If you want to enroll in COBRA and maintain your FSA, here are some things to consider:
COBRA eligibility: Employers with 20 or more full-time employees are generally required to offer COBRA, while it’s optional for smaller employers. If your employer offers COBRA and you opt in, you can keep using your FSA.
Enrollment: You must enroll in COBRA within 60 days of losing coverage through your former employer.
Contribution rules: While covered under COBRA, you'll make FSA contributions with after-tax funds rather than pretax funds.
Administrative fees: You may have to pay an FSA administrative fee and an additional COBRA administrative fee of up to 2% of your contributions
No employer matching: Under COBRA, you won’t receive any employer matching for your FSA contributions.
Length of coverage: COBRA allows you to continue your health coverage for 18 to 36 months. But your FSA is only valid until the end of the calendar year in which you lost your job.
Need to use your flexible spending account (FSA) funds before the deadline? Check out this list of FSA-eligible items, which includes everything from vision care expenses to prescription medications.
Switching health insurance plans? You may be eligible to contribute to a health savings account (HSA).
HSAs vs. FSAs: Learn about the key differences between these tax-advantaged accounts.
Let’s say you lose your job in August and still have funds in your FSA. If you choose to sign up for COBRA coverage, you can continue using your FSA for qualified expenses until December 31 of that year.
Can you spend all your FSA dollars before you leave your job?
Yes, you can spend all of your FSA dollars on qualified medical expenses before you leave your job. Under the uniform coverage rule, you have access to the total amount you committed to contributing to your FSA through payroll deductions at the beginning of the year. This means if you committed to contributing $2,400 for the year, you can access and spend the entire amount from day one, no matter how much you’ve contributed.
How to make the most of your FSA before you leave your job
Here’s how you can maximize your FSA benefits before leaving your job:
Check your FSA balance. Find out how much money you have in your FSA so you can plan to spend the funds before you leave your job.
Spend your remaining FSA dollars. With a healthcare FSA, you can spend the full amount you committed to contributing at any point during the year. You don’t have to have contributed the entire sum through payroll deductions. Your employer cannot require you to pay back the funds.
Submit receipts for medical expenses. If you pay for qualified medical expenses out of pocket, save your receipts. You’ll need them to receive reimbursement through your FSA. Review your FSA plan details and check with your employer to determine if you have to submit your receipts within a certain time frame to receive reimbursement. You may have about 60-90 days to submit receipts for expenses you incurred while you were working.
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Can I use FSAs from different employers in the same year?
Yes, you can use FSAs from different employers in the same year. There is no limit to how many FSAs you can have. However, there is an annual cap on how much you can contribute to the accounts in total. For 2025, your total FSA contributions cannot exceed $3,300.
Let’s say you decide you're going to contribute $3,300 to your FSA in 2025. That means your employer will deduct roughly $275 from your paycheck every month to deposit into your FSA. The entire $3,300 will be available in your account at the beginning of the plan year. But let’s say the following events happen during the year:
In May, you purchase a 1-month supply of Mounjaro for weight loss ($1,200) and get three cavities filled ($600). You also purchase prescription eyeglasses and contact lenses for yourself, spouse, and dependents ($1,000). You submit a reimbursement request of $2,800 from your FSA.
You quit your job on July 1. At that point, you’ve only made 6 months’ worth of contributions through payroll deductions, which is about $1,650.
Although your FSA reimbursements ($2,800) were more than your contributions ($1,650), you do not have to pay back the $1,250 difference.
You start a new job in August. At that point, you can still contribute $1,650 to your new employer-sponsored FSA before reaching your annual limit of $3,300.
If your new employer matches your contributions, your total FSA balance could exceed $3,300 for the year. However, only the funds you contribute count toward the annual limit.
As mentioned above, the IRS’ annual contribution cap only applies to payroll funds from an employee. It does not apply to employer contributions. This means if you have two jobs at the same time or leave one employer to go to another, you can participate in both employers’ FSA programs. However, the two employers cannot be under the same ownership.
How to use FSA funds before you leave your job
You can strategically use up your FSA funds before you leave your job. For example, you can schedule any tests you need to get done or stock up on prescription medications such as:
Here is a list of other items you can spend your FSA funds on before you leave your job:
If you are unable to spend all your FSA funds before you quit, you may not have to give them up. As mentioned, you may still be able to use your FSA if you qualify for COBRA. But you would need to spend any remaining funds before transitioning to another employer.
The bottom line
If you are thinking about leaving your job, you should familiarize yourself with flexible spending account (FSA) rules, so you can make the most of your benefits. Any remaining funds you have in your account when you quit could go back to your employer. You may qualify to transfer your funds to a Consolidated Omnibus Budget Reconciliation Act (COBRA) FSA, which would allow you to spend the money on qualified medical expenses while you are between jobs.
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References
Employee Benefits Security Administration. (n.d.). COBRA continuation coverage. U.S. Department of Labor.
Internal Revenue Service. (2013). Modification of ‘use-or-lose’ rule for health flexible spending arrangements (FSAs) and clarification regarding 2013-2014 non-calendar year salary reduction elections under § 125 cafeteria plans.
U.S. Department of Labor. (n.d.). Continuation of health coverage (COBRA).
This article is solely for informational purposes. This article is not professional advice concerning insurance, financial, accounting, tax, or legal matters. All content herein is provided “as is” without any representations or warranties, express or implied. Always consult an appropriate professional when you have specific questions about any insurance, financial, or legal matter.
