When an employee goes on an unpaid leave of absence there are several options to discuss:
- The employee may have the deductions for the period of the unpaid leave taken on a pre-tax basis from the last paycheck prior to the leave provided there are sufficient funds. If the employee elects this option, he/she may continue to submit HCSA claims for reimbursement for eligible expenses incurred during the unpaid leave of absence.
- The employee may choose not to contribute for the pay periods while on unpaid leave of absence. In this case, the employee will not be reimbursed for any expenses incurred during the unpaid leave of absence.
- The employee may elect to continue to contribute to the HCSA account on a pay-as-you-go basis (after-tax). Prior to their unpaid leave, the employee must notify the payroll coordinator and the FSA carrier in order to set up direct payments. The employee will be able to submit eligible claims for reimbursement during the unpaid leave of absence. There is no tax benefit to this option.
- Returning from an unpaid leave of absence is not a qualifying event to terminate the HCSA account. If the employee returns to the payroll during the Plan Year there are several options: a) The employee may continue with the original annual election with payroll deductions recalculated for the remainder of the year; or b) The employee can also choose to lower the election to the amount contributed as long as he/she has not spent more than was contributed to the account. For example: If the employee elected $2,000 as the HCSA goal amount and had payroll deductions of $1,000 before the unpaid leave, if the employee did not exceed $1,000 in expenses the employee can lower the goal amount to $1,000 for the remainder of the year. However, if the employee used more than the $1,000 contribution, for example $1,500, then the employee can only lower the goal amount to $1,500 for the remainder of the year.
- DCAP claims will only be reimbursed based on the funds in the account and cannot be used for dates of service while on an unpaid leave of absence. If the employee returns to the payroll during the Plan Year, he/she can adjust the election to the payrolls already posted to the account or continue with the goal amount originally elected recalculated over the remainder of the pay periods.
- If the leave of absence goes into the next plan year, the employee is not eligible to enroll in the new plan year until he/she returns to work.
- Very Important: If the employee does not elect to prepay the HCSA pre-tax deductions or make direct payments (pay-as-you-go), expenses incurred during the unpaid leave of absence will not be eligible for reimbursement from future deposits made to the account.
To process an unpaid leave of absence for an employee with Flexible Spending Account Benefits:
- Inactivate the HCSA/DCAP and pre-tax fee amount deductions in HR/CMS or the UMASS payroll system.
- If the employee elects to prepay the HCSA deductions from the last paycheck for the period of the unpaid leave of absence: a) enter the HCSA prepay amount and then inactivate the HCSA deduction after payroll runs; b) adjust the pre-tax fee amount in order to prepay the fee from the last paycheck and then inactivate the pre-tax fee amount after payroll runs.
This information provided by the Group Insurance Commission .