For military personnel, managing Flexible Spending Accounts (FSAs) during transitions like a PCS can be complex, especially when it comes to adjusting healthcare and dependent care benefits. The ability to adjust your FSAs in response to Qualifying Life Events (QLEs) provides an opportunity to better align your benefits with your current needs, but understanding the timing, eligibility, and impact on funds is crucial for making the most of these adjustments.
How Does A PCS Relate to FSAs?
A Permanent Change of Station (PCS) is a common event for military members, requiring a move from one duty station to another. A PCS qualifies as a QLE, which means you are eligible to make changes to your FSA elections—both for healthcare and dependent care—due to this major life transition.
When you move to a new duty station, you may face different healthcare providers, medical expenses, or childcare needs. A PCS may also affect your dependent care needs based on where you are stationed or the availability of care services. Therefore, it’s essential to review your FSA contributions and adjust them to better reflect your new situation.
What Are Qualifying Life Events (QLEs)?
A QLE is a life change that triggers a window of opportunity to adjust your FSA elections. QLEs are broad and can include events like marriage, divorce, the birth of a child, and, of course, a PCS. The key feature of QLEs is that they allow you to change your FSA elections outside the typical open enrollment period. For military members, PCS is one of the most common QLEs and typically occurs at least once during a service member’s career.
When a QLE like a PCS occurs, the window to adjust your FSA is typically 31 to 60 days after the event. This means it’s important to act promptly to ensure your new FSA elections are in place as soon as possible after the move.
Timing, Eligibility, and Changes to Your FSA
Timing is critical when it comes to adjusting your FSA in response to a QLE like PCS. Changes to your elections must be made within 60 days of the event, and in some cases, the changes may take effect as soon as the first pay period after approval. This is especially important when considering healthcare expenses, as you may be transitioning from one network of providers to another.
You are eligible to adjust your FSA elections after a PCS if the move impacts your medical or dependent care needs. For instance, if your new station requires additional medical care or prescriptions, you may choose to increase your Healthcare FSA contributions. Similarly, if you now have higher childcare needs due to the PCS, you can adjust your Dependent Care FSA to reflect the increased cost.
Qualifying Expenses and Adjustments in Your FSA
When adjusting your FSA, you need to consider the timing and eligibility of the funds that are available. Funds in your FSA are typically “use it or lose it” by the end of the year, unless you have a rollover option. For military members, if you increase your contribution to your FSA during a PCS, the additional funds are available for reimbursement once your elections are processed. However, you must remember that expenses for which you have already been reimbursed cannot be refunded or reversed, so it’s important to track what has already been claimed.
Moreover, the eligible expenses may change after a PCS, depending on the new location and available services. For example, if you move from a location with a robust selection of daycare options to one with fewer choices, your dependent care needs may increase, which means you’ll want to adjust your Dependent Care FSA accordingly. Additionally, if the move introduces new health providers or services not covered under your previous plan, you may need to adjust your Healthcare FSA to accommodate these costs.
When you experience a Qualifying Life Event (QLE)—such as a PCS, marriage, or the birth of a child—you’re allowed to adjust your FSA elections. But it’s important to understand how these adjustments work, especially when it comes to the carryover balance and when the new elections take effect.
Here’s a breakdown of how it works:
- Timing of the New Election
After you report a QLE and make changes to your FSA election, your new election amount becomes effective on the first pay period following approval by FSAFEDS. This means that the changes to your contributions won’t take effect immediately, but rather in the next pay cycle as determined by your payroll schedule.
However, any new election amount you choose will only be available to cover expenses incurred after the new effective date of the QLE. So, for example, if your new election is approved on August 15th, your new amount won’t be available to reimburse expenses incurred before that date.
- The Birth or Adoption Exception
If the QLE is related to the birth of a child, adoption, or placement for adoption, the effective date of your new election is retroactive to the actual date of the birth, adoption, or placement. This means you can use the new election amount to reimburse any expenses that were incurred from the date of birth or adoption, even if your election wasn’t approved until later. - Carryover Balances
Carryover refers to any unused funds that you have in your FSA at the end of the year, which can be carried over to the next year (up to $660 for Healthcare FSAs). However, the carryover balance will remain in the original election period. For example, if you carry over $200 from the previous year, that $200 is only available for claims incurred in the original plan year (from January 1st to August 14th in our example).
Let’s walk through a detailed example to make this clearer:
Example:
- Let’s say your original Healthcare FSA (HCFSA) election is $1,000, effective from January 1st. You also have a $200 carryover balance from last year, bringing your total available for the year to $1,200.
- Now, if you experience a QLE—say, you increase your HCFSA election to $2,000 effective on August 15th—you’ll have a new election period starting on August 15th and running through December 31st. This new election of $2,000 is available for claims incurred from August 15th onward.
- However, the carryover balance of $200 remains in the original election period (January 1st – August 14th). This means you cannot use that $200 carryover balance for claims incurred in the new election period (August 15th – December 31st). So, if you have a $2,200 eligible expense on September 1st, only $2,000 of that expense will be paid by the FSA. The $200 from the carryover will not be available to cover this expense.
- Managing Your Carryover and New Elections
If you want to use your carryover balance in the new election period, you will need to contact FSAFEDS directly. They can help you understand if it’s possible to transfer the carryover balance to the new election period or guide you through other options.
How to Adjust Your FSA Post-PCS
When adjusting your FSA after a PCS, it’s important to ensure your new elections reflect the changes in your family or healthcare needs. Here’s how to approach it:
- Evaluate Your Needs: Assess whether your healthcare and dependent care expenses will increase or decrease after the PCS. This could be due to new medical providers, different insurance coverage, or increased childcare costs in your new location.
- Make Adjustments Within 60 Days: After a PCS, you have a 60-day window to make changes to your FSA elections. Ensure you complete this process promptly to avoid missing the window and losing the ability to adjust your contributions.
- Check Your Current FSA Balance: Be aware of how much you have in your FSA before making changes. Remember, contributions to your FSA are typically deducted from your pay before taxes, but if you’re nearing the end of the year, make sure you account for any unused funds you may need to use.
- Update Your Eligible Expenses: If your dependent care or healthcare needs change with the PCS, update your elections based on the expected costs in your new location. This ensures that you’re contributing an appropriate amount and can access the funds as needed.
- Reimbursements and Timing: Any funds in your FSA can be used for qualified medical or dependent care expenses incurred after the effective date of your change. Be aware that the timing of reimbursement may depend on the provider or facility where you seek care.
Key Takeaways:
- New election amounts are only available for expenses incurred after the effective date of the QLE.
- Carryover balances remain in the original election period and cannot be used in the new election period unless specific arrangements are made.
- Birth or adoption-related QLEs allow the new election amount to be retroactive to the date of the birth or adoption.
- If you want to use your carryover balance for a new election period, you’ll need to contact FSAFEDS.
Understanding these nuances will help you plan more effectively and ensure that you make the most of your FSA benefits when a QLE occurs. Always remember to make changes promptly and track your carryover balances to avoid any confusion or missed opportunities.
Need help understanding Qualified Life Events for your FSA and what you should do or have other financial questions? The MFAA Advisors help military and veterans every day with questions like these and also taxes, investing, insurance, and military and veteran benefits. Find out who they are and how they can help with your situation by clicking here.