[My previous column advised job switchers on how to maximize bonuses, retirement matches and other payouts before leaving a job. This column provides additional opportunities to save by taking advantage of health benefits and vacation days.]
In today’s economy, leaving a job may not entitle you to a lavish good-bye party or a shiny farewell gift. However, if you plan ahead, you could go on a $2,000+ shopping spree courtesy of your employer before you walk away, or turn leftover vacation days into extra cash in your last paycheck.
The Flexible Spending Account Loophole
As healthcare risk continues to shift from employers to individuals and insurance premiums continue to rise, flexible spending accounts (FSAs) have been dangled in front of consumers as one method to save money. These accounts allow you to use pre-tax dollars on approved, out-of-pocket healthcare expenses such as contact lenses, insurance co-payments and flu shots. This means you could save up to 35% on those purchases, depending on your tax bracket.
If you’re switching jobs mid-year, you can also take advantage of a legal FSA loophole to reap up to $2,550 in extra benefits. To understand the loophole, let’s start with a quick overview of how FSA’s work.
During your employer’s annual benefits enrollment period (usually in October/November), you decide how much to contribute to your flexible spending account for the following year. The government sets a limit on contributions, which in 2016 is $2,550. The amount you elected to contribute is deducted from your paychecks from Jan 1 – Dec 31 in equal amounts. In other words, if you elect the full contribution, $2,550, and are paid twice a month, $106.25 will be deducted from each of your 24 paychecks over the course of the year.
The key insight stems from the fact that while paycheck deductions are made in equal installments throughout the year, you get full access to your entire election amount starting on January 1st. Using the example above, an employee would have access to $2,550 of funds on New Year’s Day even though she hadn’t had any funds deducted from her paycheck yet. Similarly, by the end of January, she will have paid only two installments of $106.25 into her flexible spending account for a total of $212.50, but she could already take advantage of the full $2,550.
If you are leaving your job during the course of the year, you are still entitled to the entire earmarked FSA amount for that year, even if you spend more than has been taken out of your paycheck so far. The best part is, you don’t have to pay anything back to your employer.
Here’s a tangible example: Let’s say you elected to contribute the full $2,550 to your FSA. The first week of January, you schedule your doctors’ visits and go on a shopping spree for FSA approved items, managing to spend the full $2,550. You use your FSA debit card or submit receipts and get reimbursed for your expenses. Then, you leave your job on Jan 15th. Only one installment of your contribution, $106.25, will be taken out of your paycheck, but you will have used up the equivalent of $2,550 of benefits. When you leave, you don’t have to pay your employer or insurance company back for the remaining $2443.75.
Obviously, there’s more to earn from the FSA loophole the earlier in the year one leaves; however, even a mid-year departure could net $1,275 in extra benefits. Furthermore, you can then contribute to your new employer’s FSA and have additional pre-tax dollars to spend.
There is also an important potential pitfall to keep in mind — just as you can earn extra money, you can also lose money through this process. When your employment ends, you can no longer participate in the company's flexible-spending program and forfeit any unused funds, either immediately or at the end of the month. At the very least, ensure you've used up the money you have contributed to your FSA so that you don't end up losing it before you leave.
Health Spending Accounts (HSAs)
Many employees are now being directed to high-deductible health insurance plans that come with a Health Savings Account (HSA) instead of an FSA. Enrollment in HSA’s has soared with 17.4 million enrolled as of early 2014 (a 74% increase over enrollment in 2010). Moreover, PwC’s Health Research Institute found that 44% of employers are considering offering high-deductible plans as the only benefit option within the next three years.
The FSA loophole doesn’t work for HSAs because HSAs are portable and yours to keep even after you leave an employer; however, you can still earn extra money with these accounts. Many employers contribute to an employee’s HSA at the start of the year or when she enrolls in benefits. You can double dip on this contribution by using the annual contributions from both your old and new employer.
Another great way to maximize your benefits is through reimbursement allowances for vision and other types of insurance. If you are planning to leave, make sure you utilize the services on your old employer’s plan before you leave and then again on your new employer’s plan.
For example, a vision plan may reimburse an employee up to $200/year for contact lenses and $150 for eyeglass frames and lenses. An employee could order lenses, get the $200 reimbursement at Employer A, then place another order after joining Employer B and receive an additional reimbursement. Do this for contacts, frames, and lenses, and one could easily net hundreds of dollars or more in benefits.
Monetize Your Days Off
Two dozen states require employers to include pay for any unused vacation days you have accrued (that you would have been entitled to use) in your final paycheck. And data from the Bureau of Labor Statistics indicates “more than 90% of all full-time employees in private industry receive paid vacation.” Conversely, “unless required to do so under an employment contract, collective bargaining agreement, or other legally binding agreement, an employer is not required to pay employees for accrued sick time or personal leave when they leave their employment.”
Reading and understanding your employer’s policies and acceptable usage can help you optimize your time off before changing roles. Perhaps in previous years you used a vacation day for a doctor’s visit instead of a sick day because you viewed the days as interchangeable. If your employer pays out unused vacation days, but not sick days, consider charging doctor visits in as sick days (but make sure to read your employer’s specific policy to make sure you are compliant and this is an allowable use of a sick day).
Let’s assume an employee with a $60,000 annual salary receives [an admittedly generous] 24 vacation days a year, accrued over time. The employee would earn $166.67 pre-tax for every day worked as well as for every unused vacation day she was paid out. If she left at the end of March (after the first six pay periods of the year), she would have accrued six vacation days. Therefore, if she had used sick days for doctor visits and had, for example, three unused vacation days, she would be entitled to an extra $500 in her final paycheck (3 extra vacation days not used * $166.67/day = $500).
While insurance and health benefits may not be the most glamorous aspects of switching jobs, being strategic can net you thousands of dollars in extra benefits. Plus you can use your extra health benefits to dazzle new co-workers on Day 1 wearing a fashionable new pair of Warby Parkers.
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