Making Changes to Your Flexible Spending Accounts

You can change your FSA contribution during the annual benefits open enrollment period (usually held in October) with changes effective January 1.  IMPORTANT: You must re-enroll in your FSA(s) every year.  If you do not re-enroll during Open Enrollment, your FSA participation will end on December 31.

Certain qualified changes in status may also provide an opportunity in which you may start or stop participating, or change the amount of your FSA contribution during the plan year. Call the SSC Contact Center at 734-615-2000 or 866-647-7657 (toll free) if you experience one of the following special circumstances.

Leaves

During periods when you are not receiving a salary from U-M, you can contribute to a Health Care FSA, but you cannot contribute to a Dependent Care FSA. Such periods include a leave of absence (Leave), reduction if force (RIF), and a leave under the Family Medical Leave Act (FMLA).

During these periods you can continue to submit claims for eligible expenses incurred, the procedures vary depending on the type of account.

Health Care FSA During Leaves

  • You may only receive reimbursements for services incurred during periods when you made contributions to the account.
  • If you wish to receive reimbursements during a Leave or other period when you are not receiving a salary, you must make aftertax contributions to your Health Care FSA. Reimbursement will be based on the total amount you elect for the year and will be paid upon request.
  • When you return from a Leave or RIF to an appointment eligible for benefits within the same year, your monthly or bi-weekly FSA payroll deduction amounts will increase in order to reach your annual contribution amount if you did not cancel your participation at the start of your leave or request a change upon your return if permissible.

Dependent Care FSA During Leaves

  • You may continue to submit claims for eligible expenses incurred.
  • The amount of the reimbursements will be subject to the balance in your account. If there are sufficient funds, claims will be honored upon request.
  • When you return from a Leave or RIF to an appointment eligible for benefits within the same year, your monthly or bi-weekly FSA payroll contribution amounts will increase in order to reach your annual contribution amount if you did not cancel your participation at the start of your leave or request a change upon your return if permissible.

COBRA

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) allows you to continue your Health Care FSA with after-tax contributions even after losing your eligibility to participate (for example, due to termination of your employment).

To submit claims for expenses incurred after you become eligible for COBRA, you must continue your account through COBRA.

A letter explaining your rights and responsibilities under COBRA will be mailed to your home within six weeks after you enroll in University benefits as a newly hired or newly eligible faculty or staff member. Please read the letter carefully and keep it with your records for future reference, if necessary. If you do not receive the letter, please call the SSC Contact Center.

The following lists certain eligible events that allow a mid-year change in your Dependent Care FSA or Health Care FSA and the corresponding election change that may be made. You must notify the SSC Contact Center within 30 days of the event and be prepared to provide documentation of the change upon request.

Changes in deduction amounts will be effective the first day of the month following the receipt of the authorization form or date of eligibility, whichever is later. For example, assume that you enroll in a Dependent Care FSA to begin on January 1 and designate an annual contribution amount of $300. Then, on April 1, you increase the annual contribution amount to $1,000 due to a qualified family status change. Between January 1 and March 31, $300 is available for incurred expenses. Any expenses incurred after April 1 are eligible for reimbursement up to $1,000, assuming no claims were previously filed.

Changing Your Dependent Care FSA Election

New eligible dependent

  • Marriage
  • Birth, adoption, or placement for adoption
  • A dependent becomes your eligible tax exemption (e.g., you are appointed guardian of a minor ward, or your parent moves into your home and you will claim him or her on your federal income tax return)

You may newly enroll or increase your annual election amount in a Dependent Care FSA to take into account the daycare expenses of the affected dependent or to accommodate newly acquired dependents.

You may decrease or cancel coverage if your new spouse is not employed or has a Dependent Care FSA through their employer.

Loss of your spouse through divorce, annulment, or death

  • You may newly enroll or increase your election if coverage is lost under your spouse's Dependent Care FSA, or to take into account the expenses of a newly eligible dependent (e.g., due to divorce from a non-working spouse).
  • You may decrease or cancel coverage if eligibility is lost (e.g., your dependent now resides with your former spouse).

Loss of a dependent through death, or the dependent is no longer eligible (e.a child reaches age 13)

You may decrease or cancel your election to take into account the daycare expenses of the affected dependent.

Changes in Your or Your Dependent's Employment Status

Change in employment status, including termination or commencement of employment; strike or lockout; commencement of or return from an unpaid leave of absence; can affect your eligibility for a Dependent Care FSA:

  • If you terminate employment or go on an unpaid leave of absence, you may change your election amount or cancel coverage.
  • If you return from an unpaid leave of absence, you may start an account or change your election amount.
  • If your spouse commences employment or has another employment event that triggers eligibility to enroll in their employer's Dependent Care FSA plan (e.g., part-time to full-time; returns from leave of absence),
    • you may newly enroll (if spouse previously did not work)
    • You may decrease or cancel your election, provided your spouse elects coverage under their employer's Dependent Care FSA plan.
  • If your spouse terminates employment or has another employment event that causes loss of eligibility under their employer's Dependent Care FSA plan (e.g., full-time to part-time)
    • You may decrease or cancel your election if your spouse stops working.
    • You may newly enroll or increase your annual election amount to reflect the loss of your spouse's eligibility under their employer's Dependent Care FSA plan.

Dependent Day Care Changes

If you need to change to a different daycare center which charges to a different rate, for a reason such as:

  • Concern about a center's administration, staff quality, or staff turnover;
  • The center only cares for children age two or over, a new baby arrives and the participant wants care for the new baby and siblings at one center;
  • A child is in a temporary center while wait-listed for a preferred center, and a position opens;
  • A new, state-of-the-art facility opens and participant enrolls child at the new center;
  • A change in the participant's residence or work location makes a new center more convenient or results in a change in the cost of coverage of your daycare provider;
  • A center requires that a child be moved due to the child's unsafe behavior (e.g., biting or hitting) or a parent's frequent late child pickups; or
  • A child needs to be moved from a daycare center due to chronic illness.

You may increase or decrease the Dependent Care FSA election amount consistent with a change in qualified dependent daycare expenses. For example, if the new child care center is more expensive, the election amount may be increased by a corresponding amount.

Change in Home Child Care Provider

  • You may increase or decrease your election amount consistent with a change in cost for a new home child care provider, including a change in a nanny-sharing arrangement. However, IRS regulations do not allow a Dependent Care FSA election change for a cost increase by a child care provider who is a relative.
  • If there is a change in your home child care provider because a relative or friend has agreed to watch the child for free, you may decrease or cancel your Dependent Care FSA enrollment.
  • If you or your spouse change work schedules (including to or from part-time status), changing the hours when outside care is required and the amount of eligible dependent day care expenses, you may increase or decrease the amount consistent with the change in cost

Changing Your Health Care FSA Election

The IRS rules that allow mid-year changes in a Health Care FSA are much more restrictive than otherwise permitted for enrollment under a pre-tax health insurance plan or a Dependent Care FSA. While you may be allowed to make changes to other coverage options under some of the situations listed below, changes to your Health Care FSA are not permissible if:

  • You move inside or outside of an HMO service area and change your health plan option.
  • Your annual earnings decrease due to a change in your appointment percentage or other job change, and you still remain eligible to participate in the university's Health Care FSA.
  • Your anticipated health/dental/visions costs increase or decrease due to unanticipated factors. Some examples include the following situations:
    1. You funded your FSA with an expectation of having LASIK eye surgery and were advised you were not a good candidate for surgery.
    2. You funded your FSA with an expectation of having extensive dental work done. Schedule issues by your dentist's office resulted in the needed work to be carried over several months, and all of the work could not be completed before the end of the plan year.
    3. You funded your FSA with an expectation of having limited out-of-pocket expenses for the year. Midway through the year, your dependent required outpatient mental health treatment that was only partially covered by your health plan, resulting in significant out-of-pocket expenses.
    4. You funded your FSA with an expectation of continued use of a particular prescription drug at a fixed co-pay, amount. Your physician determined it was necessary to change the medication to a drug with a higher co-pay, or your condition improved and you no longer needed to take the drug.

These are only a few examples, but the IRS has ruled that the employee's intent when signing up for a Health Care FSA is not relevant. The Health Care FSA remains available to reimburse other out-of-pocket medical expenses and a mid-year change is not allowed under these circumstances. Please keep this in mind when deciding how much to contribute to a Health Care FSA. You forfeit any contributions you cannot claim.

The following information lists permissible events that allow you to make a mid-year change in your Health Care FSA and the corresponding election change that may be made. You must notify the SSC Contact Center within 30 days of the event and be prepared to provide documentation of the change upon request.

Change in Your Legal Marital Status

By marriage, death of spouse, divorce; or annulment

  • If you marry, you may increase your election when a family member is added; or decrease your election if:
    1. you, your spouse or dependents become eligible under your new spouse's employer's health care FSA plan; and
    2. your spouse is a participant in his or her employer's plan, and
    3. coverage for the affected individual becomes effective or is increased under the other employer's plan.
  • If you cease to be married, you may decrease your election for your former spouse who loses eligibility. You may enroll in or increase your own election only if you have lost coverage under your former spouse's health care FSA plan.

Change in Number of Your Tax Dependents

By birth, death, adoption, or placement for adoption

  • If you gain a dependent, you may enroll in or increase your election for the newly acquired dependent.
  • If you lose a dependent, you may decrease your election for the dependent who loses eligibility.

Changes in Employment Status

Changes that affect the eligibility of the employee, the employee's spouse, or the employee's dependent, including termination or commencement of employment; strike or lockout; commencement of or return from an unpaid leave of absence.

  • If you terminate employment or go on an unpaid leave of absence, you may change your election amount or terminate coverage if some other qualifying change in eligibility occurred during that leave.
  • If you return from unpaid leave of absence, you may start a Health Care FSA or change your election amount if some other qualifying change in eligibility occurred during the leave.
  • If your spouse terminates employment, or goes on an unpaid leave of absence, you may enroll in or increase your election if your spouse or dependent loses eligibility for participation in their employer's health plan.
  • If your spouse or dependent commence employment or returns from an unpaid leave that triggers a gain in eligibility under his or her employer's plan, you may decrease your election if your spouse or dependent gains eligibility and enrolls in his or her employer's health plan.
  • For U-M employees enrolled in a Health Care FSA, an increase in hours does not allow you to change your Health Care FSA.

Certain Judgments, Decrees, or Court Orders

If a judgment, decree, or court order from a divorce, legal separation, annulment, or change in legal custody requires that accident or health coverage for your dependent child (including a dependent foster child) be provided by:

  • you, you may change your Health Care FSA election to provide the child with corresponding coverage.
  • your spouse, former spouse, or other individual, you may change your Health Care FSA election to decrease corresponding coverage for the child if the other individual actually provides the coverage.

Eligibility for Medicare and Medicaid

If you, your spouse, or your dependent:

  • are enrolled in a U-M health plan and become entitled to and enroll in Medicare or Medicaid (other than coverage solely for pediatric vaccines), then for that individual you may decrease your Health Care FSA election if the Medicare/Medicaid coverage is more comprehensive, or you may increase it if the U-M coverage was more comprehensive.
  • lose eligibility for Medicare or Medicaid, then for that individual you may increase your Health Care FSA election, or decrease it if the university's plan is more comprehensive.