What Happens to Your FSA and HSA After a Layoff

When you are laid off, a health flexible spending account (FSA) normally stops paying for expenses incurred after your coverage ends, although you can still submit claims for earlier expenses during the plan’s run-out period. A dependent care FSA follows its own plan rules. A health savings account (HSA) belongs to you and stays with you. Your plan document and summary plan description list the exact dates.

The three accounts sound alike but work under different tax rules. The IRS explains all of them in Publication 969, and the employer side, including the 2026 limits, in Publication 15-B.

Does my health FSA end when I am laid off?

Yes, in most plans. Coverage for new expenses stops on your termination date or at the end of that month, depending on how the plan defines it. Money you elected for the year but did not spend is generally forfeited, which is the “use it or lose it” rule.

The rule can also work in your favor. A health FSA generally has to make your full annual election available during the plan year, even before you have paid it in through payroll. A worker laid off in spring who has already been reimbursed for more than they contributed is usually not asked to repay the difference.

How long do I have to submit FSA claims after my last day?

You have until the end of the plan’s run-out period, which the plan sets. The run-out period is extra time to file claims for expenses you incurred while you were covered, such as a dentist visit the week before your layoff. It does not cover new expenses.

Two other features apply to people who stay in a plan through the end of the year:

• Grace period: a plan can allow up to 2 1/2 months after the plan year ends to incur new expenses against the old balance.
• Carryover: instead of a grace period, a plan can let a limited amount roll into the next plan year. A plan cannot offer both for a health FSA.

Whether a grace period or carryover still helps you after termination depends on the plan document, and on whether you keep the FSA through COBRA. Ask the administrator for the run-out deadline in writing before your last day.

Can I keep my health FSA through COBRA?

Sometimes, and only until the end of the current plan year. Under Treasury regulations at 26 CFR 54.4980B-2 (Q&A-8), a health FSA that qualifies as an excepted benefit has to offer COBRA only if the amount you could still be reimbursed for the rest of the year is more than the most the plan could charge you in COBRA premiums for that period. It does not have to offer COBRA for any later plan year.

In practice, people who have spent less than they put in tend to get the offer, and people who are already ahead do not. COBRA premiums for the FSA are paid with after-tax money.

Example with round numbers

Say you elected $3,000 for a calendar plan year, or $250 a month, and were laid off on June 30 after $1,000 in claims. Your remaining benefit for July through December is $2,000. If the plan charges a COBRA premium equal to your monthly contribution plus the 2% allowed for administration, six months would cost about $1,530. Because $2,000 is more than $1,530, the plan would have to offer COBRA, and you could still claim up to $2,000 of eligible expenses through December. The plan sets the actual premium, so check your election notice. Our guide to COBRA after a layoff covers the election deadlines for medical coverage.

What happens to my HSA after a layoff?

Nothing is forfeited. Publication 969 describes an HSA as portable: it stays with you if you change employers or leave the work force. Money your employer already deposited belongs to you, and you can keep spending it tax-free on qualified medical expenses.

HSA money usually cannot pay insurance premiums, but there are exceptions that matter after a layoff. You can use it for COBRA continuation premiums and for health coverage while you are receiving unemployment compensation under federal or state law.

You can keep contributing only while you are covered by a qualifying high-deductible health plan and have no disqualifying coverage. If you elect COBRA on the same high-deductible plan, you generally stay eligible. Some employers pay the HSA custodian’s monthly fee only for current employees, so check whether a fee starts after you leave.

What are the 2026 contribution limits?

As of November 2026, these are the federal limits for 2026. Your plan can set lower ones.

If you are eligible for an HSA for only part of the year, the limit is generally figured month by month, so stopping payroll deposits mid-year does not by itself create an excess contribution. If you start a new job with an HSA-eligible plan later in the year, count what you already contributed toward the same annual limit.

What should I do with these accounts before my last day?

1. Log in to the FSA portal and write down your balance, your annual election and your claims to date.
2. Submit receipts for every eligible expense already incurred, including copays and prescriptions.
3. Ask HR or the administrator for the coverage end date and the run-out deadline.
4. Watch for the COBRA election notice and check whether it lists the health FSA separately from medical coverage.
5. For a dependent care FSA, ask whether care expenses after your last day can still be reimbursed from the balance.
6. For an HSA, confirm you have your own login with the custodian, update your personal email and address, and download your contribution history.

Severance can affect timing too. If your employer keeps you on payroll through a notice period, your FSA coverage may run longer. Our guide to severance pay rules explains how those arrangements usually work.

Bottom line

The money most at risk in a layoff is an unspent health FSA balance, and the fix is usually timing: claims filed within the run-out period, or eligible appointments scheduled before coverage ends. HSA money is not at risk, and it can pay COBRA premiums tax-free while you look for work. For questions about your own taxes, ask a tax professional.

FAQ

Do I have to pay back FSA money I spent before I was laid off?

Generally no. Health FSAs must make the full annual election available during the plan year, so an employer usually cannot recover the amount by which your reimbursements exceeded your contributions. Check your plan document if HR suggests otherwise.

Can my employer take back its HSA contributions?

Not once they are in your account, apart from narrow corrections for mistaken deposits. HSA balances are nonforfeitable, so employer money already deposited stays yours.

Can I pay COBRA premiums from my HSA?

Yes. COBRA continuation premiums are one of the listed exceptions that HSA money can pay tax-free, as is health coverage while you receive unemployment benefits.

What happens to a dependent care FSA if I stop working?

Payroll contributions stop with your last paycheck. Whether you can still be reimbursed for later care from the remaining balance depends on the plan, so ask the administrator before your last day.