If you haveany amount in your FSA at the time you lose your job and yourhealth care coverage, your employer must offer you the ability tocontinue to have access by paying a COBRA premium. (Photo:Shutterstock)
Millions of people have lost their jobs or been furloughed because ofthe COVID-19 pandemic. Understandably, many people have questionsregarding job loss and how that will impact their tax-free benefitsincluding HSAs and FSAs. To help you navigate and manage yourbenefits during these uncertain times, the following are somefrequently asked questions with some answers.
What happens to my HSA when I lose my job?
You continue to own your HSA after you lose your job. You maytake distributions from your HSA if you want or need to; it's your decision. If you continue to be covered by anHSA-compatible high deductible health plan (HDHP) you can continuemaking contributions to your HSA.
What are the tax consequences of an HSA distribution after youlose your job?
Distributions from your HSA are tax free if those distributionsare used to pay or reimburse you for qualified medical expenses.Distributions from your HSA used to pay health insurance premiumsare tax free for (i) HSA owners age 65 and over, (ii) COBRAbeneficiaries, and (iii) individuals receiving unemploymentcompensation. If the distribution is not used for qualified medicalexpenses or for health insurance premiums for the individualsdescribed above, then the distribution will be taxed as income. A20 percent additional tax is also imposed if you are not disabledor are not eligible for Medicare (currently age 65).
Can I use my HSA to pay premiums for my employer-providedHSA-compatible HDHP after losing my job?
If you lose your job and as a result you lose employer-providedhealth insurance coverage, you are then eligible under COBRA tocontinue that coverage by paying the full premium for thatcoverage. Since you are a COBRA beneficiary, the distribution fromthe HSA to pay for the COBRA premiums is tax free. If the HDHP wasnot employer-provided coverage, you are not eligible for COBRA forthat coverage. Consequently, you may only take a tax-freedistribution from your HSA to pay for the HDHP premiums if you arereceiving unemployment compensation
What happens to my FSA when I lose my job?
The rules are different for FSAs than for HSAs. Generally, anFSA is a group health plan and, in most cases, if you have anyamounts in your FSA at the time you lose your job and your healthcare coverage, your employer must offer you the ability to continueto have access by paying a COBRA premium.
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