hands hold money jar If you have any amount in your FSA at the time you lose your job and your health care coverage, your employer must offer you the ability to continue to have access by paying a COBRA premium. (Photo: Shutterstock)

Millions of people have lost their jobs or been furloughed because of the COVID-19 pandemic. Understandably, many people have questions regarding job loss and how that will impact their tax-free benefits including HSAs and FSAs. To help you navigate and manage your benefits during these uncertain times, the following are some frequently asked questions with some answers.

|

What happens to my HSA when I lose my job?

You continue to own your HSA after you lose your job. You may take distributions from your HSA if you want or need to;  it's your decision. If you continue to be covered by an HSA-compatible high deductible health plan (HDHP) you can continue making contributions to your HSA.

Related: 5 ways the CARES Act affects HSAs, FSAs and HRAs

|

What are the tax consequences of an HSA distribution after you lose your job?

Distributions from your HSA are tax free if those distributions are used to pay or reimburse you for qualified medical expenses. Distributions from your HSA used to pay health insurance premiums are tax free for (i) HSA owners age 65 and over, (ii) COBRA beneficiaries, and (iii) individuals receiving unemployment compensation. If the distribution is not used for qualified medical expenses or for health insurance premiums for the individuals described above, then the distribution will be taxed as income. A 20 percent additional tax is also imposed if you are not disabled or are not eligible for Medicare (currently age 65).

Can I use my HSA to pay premiums for my employer-provided HSA-compatible HDHP after losing my job?

If you lose your job and as a result you lose employer-provided health insurance coverage, you are then eligible under COBRA to continue that coverage by paying the full premium for that coverage. Since you are a COBRA beneficiary, the distribution from the HSA to pay for the COBRA premiums is tax free. If the HDHP was not employer-provided coverage, you are not eligible for COBRA for that coverage. Consequently, you may only take a tax-free distribution from your HSA to pay for the HDHP premiums if you are receiving unemployment compensation

What happens to my FSA when I lose my job?

The rules are different for FSAs than for HSAs. Generally, an FSA is a group health plan and, in most cases, if you have any amounts in your FSA at the time you lose your job and your health care coverage, your employer must offer you the ability to continue to have access by paying a COBRA premium.

Recommended For You

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

Your access to unlimited BenefitsPRO content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Breaking benefits news and analysis, on-site and via our newsletters and custom alerts
  • Educational webcasts, white papers, and ebooks from industry thought leaders
  • Critical converage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
NOT FOR REPRINT

© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.