Flexible spending accounts (FSAs) are employer-sponsored accounts that allow employees to contribute funds directly from their paychecks, tax-free, to pay for out-of-pocket medical and dependent care costs. During the annual open enrollment period, an employee must elect how much to contribute to their FSA for the upcoming plan year. Generally, the employee can’t change their election amount outside of open enrollment unless they experience a qualifying life event (QLE). Common qualifying events involve changes to marital status, gaining or losing a dependent, or changes in employment status. However, the exact list of QLEs that an employer accepts may vary.
What’s a qualifying life event for an FSA?
A qualifying life event allows you to open an FSA or make changes to your FSA contributions for the year outside of open enrollment. Here are some of the QLEs that may motivate you to adjust your FSA contributions midyear:
Marriage
Death of a spouse
Divorce, legal separation, or annulment
The birth or adoption of a child
Gaining an eligible dependent, like an elderly parent
Death of a dependent
A dependent no longer qualifies for your plan, such as when your child ages out of eligibility at age 26
You, your spouse, or your dependent experience a change in employment that affects health insurance benefits
You receive a court order requiring you to provide health insurance for a child
You, your spouse, or a dependent gain or lose Medicare or Medicaid coverage
You go on or return from leave under the Family and Medical Leave Act (FMLA)
Your dependent care expenses change, such as when daycare tuition increases
Keep in mind that the specific QLEs you can use to make election changes depend on what your employer and your FSA plan allow. Your plan may allow you to update your FSA contributions for all, some, or none of these QLEs.
Qualifying life events for HSAs
If you participate in a health savings account (HSA), you don’t need to worry about QLEs because you can make changes to your HSA contribution amount at any time, as long as your specific HSA plan allows you to make changes. Not all employers or HSA plans give the option to change your HSA contribution during the year. Even though you don’t need to experience a QLE to update your HSA elections, you can treat many of the same life events as an opportunity to reevaluate your HSA contributions.
Considerations for common QLEs
The most common qualifying life events are usually tied to a change in marital status, number of eligible dependents, or employment status. Here are some of the common QLEs, and what to consider when adjusting your FSA contributions.
Your marital status changes
If you get married, you may want to enroll in an FSA or increase your existing contributions. You can use your FSA to pay for your spouse’s medical and dental expenses even if your spouse has a different insurance plan or if your spouse is enrolled in an FSA themselves. [1] Your annual FSA contribution limit won’t increase if you get married, but since each spouse could potentially have their own FSA, a married couple could contribute up to $6,100 to an FSA each year.
If you get divorced, separated, or your spouse passes away, you may not need to contribute as much to your FSA as you did before, especially if you primarily used the FSA for your former spouse’s expenses. If you don’t anticipate you or your dependents incurring as many medical costs, you may want to decrease your annual contribution.
You gain or lose a dependent
The birth or adoption of a child is an important time when you may consider increasing your medical FSA contributions. You can use an FSA to pay for out-of-pocket costs the mother and newborn incur while at the hospital, as well as any ensuing follow-ups. And you can continue to use your FSA for your child’s expenses until the end of the calendar year in which they turn 26, as long as they’re still a dependent on your taxes.
If you plan on paying for childcare so that you can work, you may want a dependent care FSA. You can use DCFSAs to pay for eligible costs including au pairs, work-related babysitting, before and after-school programs, nannies, and daycare centers. You must be either working or looking for work, and if you’re married both spouses must be working or looking for work (unless one spouse is unable to work because of a disability). The child must be under age 13 and live with you more than half the year to qualify you for a DCFSA.
You can also use FSAs to pay for medical and dependent care expenses for adult dependents, such as an elderly parent or a spouse who isn’t able to care for themselves. If you become responsible for an adult dependent, you might wish to use that event to increase your FSA contributions.
The loss of an eligible dependent also counts as a QLE, and is a time you may want to decrease your FSA contributions. When your child turns 26 and isn’t a dependent on your tax return, you can no longer use your FSA on their expenses. Once your child turns 13, they are no longer eligible for dependent care FSAs.
Read more: 53 tax deductions and credits you can claim in 2021
Changes to your employment status
Changes to employment status for yourself, your spouse, and your dependents typically count as qualifying life events if they affect your health insurance. Of course, if you start a new job with an employer that offers an FSA you can enroll right away. But if an employer reduces work hours for yourself, your spouse, or your dependent and that reduction results in a loss of health coverage, you can use that QLE to increase or decrease your FSA contributions. This also applies if your spouse or your dependent loses their job and it affects their health insurance.
What happens to your FSA if you leave your job, voluntarily or involuntarily? Any funds that remain in your FSA go back to your employer, unless you are able to continue your health insurance under COBRA. If that happens, you can continue to spend any funds that remained in the account when you left your job.
If you know you will be leaving your job soon, you can try to spend the remaining balance in your FSA before your departure. If you spend the entire balance and you haven’t fully funded your elected annual contribution by the time you leave, your employer will be on the hook for the difference (but their expenses will be offset by any unused funds that other employees lose at the end of the year).
Dependent care expenses change
One last important QLE is specific to dependent care FSAs. If you experience a change in dependent care costs — such as if your daycare center dramatically raises tuition or you move your child to a more expensive daycare — you can increase your DCFSA contributions. If your coverage needs decrease — like if you remove your child from daycare or if your child’s daycare closes for the summer — you can claim a qualifying life event and reduce your contributions.
How to change your FSA contributions
If you already have an FSA, you can generally adjust your elections outside of open enrollment by filling out a change form. Some plans may allow you to complete this form online instead of requiring a physical form. If you don’t already have a health FSA or dependent care FSA, you will need to fill out the paperwork to open a new account. You may also be asked to submit supporting documents, such as a birth certificate, to prove that the qualifying event occurred.
Remember, your employer or third-party FSA administrator decides which QLEs to allow, so check your FSA plan details to see if your specific life event is covered as a QLE. The plan administrator also determines the exact process you need to follow to change your contribution amount. You generally have 30 or 60 days after the event to complete and submit the necessary paperwork, but you may be able to submit change requests before the event. Check with your employer and FSA administrator to find out the exact deadlines.
How much can you contribute to an FSA?
The annual contribution limit for an FSA is set by the IRS and is $3,050 for 2023 (the IRS hasn’t confirmed the 2022 limit yet). This contribution limit applies per employer, so someone who is married can still only contribute up to $3,050 to their individual FSA, but their spouse can also contribute up to the maximum.
The contribution limit for a dependent care FSA is $5,000.
