Who Gets the Unused Money in a Flexible Spending Account?

In order to assist employees with managing their health care expenses, many companies offer flexible spending accounts. Workers can set aside pre-tax money in a flexible spending account to pay medical or dental bills remaining after the insurance company pays its portion.

Account Funding

• Flexible spending accounts receive voluntary contributions from employees. Prior to the start of a new year, employees determine how much they want to contribute to their account during the following year. The company divides this amount by the total number of pay periods to determine the amount of money to withhold from each paycheck. The money contributed to a flexible spending account is excluded from gross income and incurs no income tax liability for the employee. Some employers also contribute funds to flexible spending accounts.

Account Distributions

• Distributions from flexible spending accounts must be used for medical or dental expenses in order to maintain the tax-free status. These expenses apply to the employee, her spouse or her dependents. Account distributions may be provided through the use of a debit card or by issuing a check to the employee. Account distributions cannot be used to pay health insurance premiums, long-term care expenses or for expenses paid through a different health plan. The employee may request a distribution at any time for the full annual amount to be contributed to the plan, regardless whether it has been contributed yet at the time.

Balance at End of Year

• At the end of the year, many employees find themselves with a balance remaining in their flexible spending account. These employees can request reimbursement for any expenses they've not yet received. However, if they do not have any expenses to submit, they lose the money remaining in the account.

Grace Period

• Some companies provide a grace period with the flexible spending account. The grace period may extend until the middle of March and allows employees to submit medical expenses. With the grace period, funds remaining in the previous year's account can be used to reimburse these expenses.

Final Unused Balance

• When unused funds remain in a flexible spending account at the end of the year and any applicable grace period expires, the funds stay with the employer. According to the Internal Revenue Service, the employer cannot give the money back to the employee. Companies typically use these funds to pay plan benefits. Some employers contribute the remaining funds into flexible spending accounts for the current year.