The Best Sly Money Move You Don't Know About

CNN Money lists the best sly money move you don't know about as the following:

If you're leaving your job this year and have a flexible spending account (FSA) for health-care expenses, listen up. Let's say you agreed to contribute $3,000 to your FSA in 2009 via payroll deduction. You would have put in only about $1,000 by now. But thanks to the quirky rules governing the plans, you're eligible to be reimbursed up to the full $3,000 for expenses you incur before your last day on the job. To be safe, file the claims by the time you leave.

Ok, so it is sly, but it pertains to a very small handful of people, doesn't it? You have to be leaving your job, you have to have an FSA available, you have to have contributed to the FSA, and you have to have NOT fully funded it yet.

For the two of you out there that this applies to, go for it!

I guess if it was really sly and something we could all use, we would have heard about it by now! ;-)

Comments

[rdub98]

I had heard about it because it happened at my job. Someone left, but had already been reimbursed for the entire FSA account. She left in the early part of the year too.

[Greg]

Sorry, but while this is a loophole that could benefit some folks, I see this as slightly dishonest. It's one thing if you unintentionally let this happen, another to do it with the intention of leaving the account in a negative position.

This isn't an insurance product you are buying, it's essentially a loan you take out from the company with the promise to re-pay through future pre-tax payroll deductions. It's no different from a pay advance, except the laws allow you to skip out on your commitment.

As a small employer who struggles to provide good benefits, I have a problem with people who purposefully run their accounts negative to leave the company holding the bag. I don't have a problem with people who are laid off or otherwise are unintentionally getting into this situation.

Just another viewpoint.

[Uri]

You are unfairly dismissing this tip. Using uniform distributions, you expect to be leaving your job in the middle of the year, spend your expenses equally throughout the year, and contribute equally throughout the year. If you use recent statistics, then it is likely that you are closer to the start of the year. The odds of leaving your job this year are maybe 1/10. The real issue is whether you use an FSA. Most people don't so it's not useful information for both. But if you have an FSA - this is good advice.

[Yang Wei]

The reverse is also true. You can contribute through mid-December and be fired the day before you planned to use your FSA account. Result: Bye, bye money.

Also, Anything contribution you don't claim disappears after March 30 of the following year.

[Bill]

We are having a baby in June and the wife will be done at her job. We put a smaller amount with the FSA and used it up pretty darn quick. I was reading that most companies will let it slide, but some can come after you for the difference. I am not worried. We were talking about $200, not thousands like some could do, but we don't have that many medical bills.

[Grace]

A few years back, our friend left his job in the 1st quarter of the year. He just happened to sign up for the maximum amount allowed in FSA and his lawyer wife just happened to get her Lasix procedure that year. Yeah, not pre-meditated at all! They were quite proud of themselves when they recounted the story to us.

[Matt]

Unless you signed something allowing the company a remedy if you use more benefit than paid in, they can’t come after you. They might ask you to pay it back, but you don’t have to.

Regarding the earlier argument about dishonesty…..if you don’t use your FSA funds, I don’t see any companies giving the money back. The loophole is in place to even the playing field, IMO.

[Bad_Brad]

I unintentionally had this happen back in 2005 when we moved and I changed employers. I had a bunch of medical / dental work done in early 2005 which I submitted to my FSA. It nearly exhausted my whole year's FSA. Of course, this was in like March, so I had only funded a couple of months. I fully expected to get a bill from, I don't know, my employer, the health care service provider, the insurance company, the government, the Easter Bunny - somebody! - asking me to pay the difference but I never did.

At the end of that year, I half shrugged, and half said "holy cow, that's a big loophole that a lot of people could exploit, I can't believe someone in the government was stupid enough to set it up this way."

[Jim]

From the following source I found, it looks like many people at least have the option of an FSA:

http://www.nytimes.com/2009/01/30/health/policy/30patientmoney.html

"About 85 percent of large companies (ones with 500 or more employees) offer flexible spending accounts. But only 22 percent of eligible employees took advantage of thebenefit, according to a recent Mercer Survey."

[Amanda]

I took advantage of this, but by accident. I had put 3k in an FSA for Lasik, had it done in February, then ended up quitting my job and moving cross-country in April. I didn't plan it that way, but I was aware that the loophole existed.

My current FSA management company has also given "premium holidays" because so many people had unused money. Apparently my employers agreement forces them to refund some portion of the funds to current FSA users. It's been $80-$100 each of the last 4 years. So I don't think taking advantage of the structure when you quit part-way through the year has much impact.

[Stephen]

Also note that if your company offers an FSA and then, part-way through the year your company switches to a new insurance provider (and hence a new FSA plan) you get a similar effect. Namely, you can get your full annual amount from the first plan, even though you haven't contributed that much yet (as long as you incur & submit the expenses while still under the old plan).
This actually happened to my wife earlier this year -- very convenient :).

[Bobby]

This actually happened to me, my division was bought by a competitor. I was about 8 months into funding the FSA and got to keep the whole amount to spend, which I had already arranged medical treatment that would have have liquidated the entire FSA. Not to mention you get 30% return on all money invested into a FSA, tax savings. It was a pretty good deal all around.

[Sheila]

Using the example above

you sign up to contribute $3,000 to your FSA in 2009 via payroll deduction and end up putting in only $1,000 before you terminate employment, but were reimbursed the full $3,000 for expenses you incur before your last day on the job.

Yes, it appears you had a $2,000 windfall, but that $2,000 will show up in wages on your 2009 W-2 and you will owe taxes on the full $2,000.

[George]

I had this happen once and I do not believe it showed up on my W-2. However, a question for tax professionals, even if it does not show up on my w-2, should I include it as taxable income on my return?

[texashaze]

A friend of mine in HR at my company told me this a few years ago. It's true, you can leave in Jan and get all your money. It's a loophole not many folks know about.

[My Crossover Point]

At first I thought it might be a little dishonest, but think about it. As someone else mentioned, you could get fired or quit in December without using your FSA and lose all the money you put in.

Besides, even a small company should understand the FSA plan before they offer it, and keep track of the FSA amount as a liability on their books, so they don't get surprised by the fact that someone used up the FSA before they had paid all the way into it.

Paul

[Otis]

What really irks me is that you can't set up an FSA if your spouse has an HSA Health Plan or vice versa. I think that may be why the FSA participation numbers are so low.

Unfortunately the end effect is that, per usual, the programs intending to help people in the middle pay for their health care only end up shooting us in the foot or leaving us with no options.

[Brad]

Count me as another one who sees this as unethical if done on purpose before leaving a job. The company ends up paying the difference.

We periodically look at our profits and give out bonuses. If someone takes a couple thousand dollars extra this way as they are quitting, in my mind they are taking it from their coworkers. The profit is less and it's more likely to come out of bonuses than the owners' dividends.

On the other hand, if someone doesn't spend all of their FSA money the company gets to keep the difference. Of course, we send out reminders for things like this as the plan year is coming to an end and there should not be any left for the company.

[PK]

Actually the company can ask you to refund any overpayment from and FSA that was not fully funded yet. So basically it can either bite you in the back, or the company is KNOWINGLY giving you a slightly larger severance. At my current company it's not usually worth the effort because few people contribute enough for it to hurt the books in a significant way.