Updated August 7, 2026. Quick answer: your health FSA usually stops covering you on your last day — but the deadline to submit claims runs later, and the two dates get confused constantly. 🔴 What matters is the date the care was provided, not the date you were billed or filed. Money left after that is generally forfeited. Money you overspent is generally yours to keep.
Two different dates, and only one of them is the run-out
The period of coverage ends when you stop being a participant. The run-out period is defined as “a period after the end of the plan year (or grace period) during which a participant can submit a claim for reimbursement for a qualified benefit incurred during the plan year.”
⚠️ The run-out period buys you filing time, not coverage time. A 90-day run-out does not mean 90 more days of eligible expenses. It means 90 more days to submit expenses from when you were still covered.
“Incurred” has a defined meaning too, and it is not the intuitive one: expenses are incurred “when the employee… is provided with the medical care that gives rise to the medical expenses, and not when the employee is formally billed, charged for, or pays for the medical care.”
🔴 So the surgery you had in June counts even if the bill lands in September; the appointment you book for September does not, however fast you pay for it. The regulation carries a worked example on precisely this: a terminated employee who does not elect COBRA cannot be reimbursed for expenses incurred after participation ends.
The rule that works in your favour
A health FSA must make your entire annual election available from day one. The rule reads: “The maximum amount of reimbursement from a health FSA must be available at all times during the period of coverage (properly reduced as of any particular time for prior reimbursements for the same period of coverage).” And the point is made explicit in the next sentence: “Thus, the maximum amount of reimbursement at any particular time during the period of coverage cannot relate to the amount that has been contributed to the FSA at any particular time prior to the end of the plan year.”
🔴 This is the uniform coverage rule, and it is why a layoff can leave you ahead. The regulation’s own example has an employee electing $3,000, paying in $250 a month, and being eligible for the full $3,000 at any point. If you elected $3,000, used it in March, contributed $750, and were laid off in April, the plan does not generally come after the difference.
There is a matching rule the other way: when you stop being a participant, the plan “must pay the former participant any amount the former participant previously paid for coverage or benefits to the extent the previously paid amount relates to the period from the date the employee ceases to be a participant through the end of that plan year.”
You can sometimes COBRA an FSA — but only if it is underspent
A health FSA is a group health plan, so COBRA can apply — under a limited obligation. The regulation says an FSA “need not provide COBRA coverage in the current year unless the qualified beneficiary can become entitled to receive during the remainder of the plan year a benefit that exceeds the maximum amount that the health FSA is permitted to require to be paid for COBRA continuation coverage for the remainder of the plan year.”
In plain terms: it is offered only when there is more left in the account than the premium would cost. If you elected $3,000 and have spent $400, continuing may be worth it — you pay premiums with after-tax money to unlock pre-tax money you already committed. If you have spent most of it, the maths does not work and the plan does not have to offer it. Where the conditions are met, the obligation also does not extend into the next plan year.
Dependent care FSAs work differently — usually better
If your plan adopted the optional spend-down provision, dependent care expenses “incurred after the date an employee ceases participation in the cafeteria plan (for example, after termination) and through the last day of that plan year… may be reimbursed from unused benefits.”
🔴 That is the opposite of the health FSA rule, and it is worth checking before you write the balance off. The regulation’s example follows a terminated employee whose childcare costs at a later job, in the same plan year, are reimbursed from the former employer’s remaining balance. Note the word optional: your plan document decides whether it applies. Honest gap: whether COBRA can apply to a dependent care FSA is not addressed directly in the material we verified — treat the spend-down provision, not COBRA, as the route to check.
The order to do this in
- Find the two dates in your plan documents — the last day of coverage and the run-out deadline. They are different and both matter.
- Submit everything already incurred, including care you have not been billed for yet. This is the step people miss.
- Check the balance against the COBRA test before dismissing continuation.
- Ask whether the dependent care plan has the spend-down provision.
⚠️ Do not confuse this with your HSA, which is yours and moves with you — what happens to an HSA when you leave your employer. The forfeiture problem is an FSA problem specifically.
Coverage itself is the larger decision: COBRA versus ACA. The deadline calendar has the dates; the decision order has the sequence.
Sources
Run-out period: Prop. Treas. Reg. §1.125-1(f). Incurred-versus-billed and the post-termination example: Prop. Treas. Reg. §1.125-6(a)(2). Uniform coverage and terminated participants: Prop. Treas. Reg. §1.125-5(d). COBRA limited obligation for health FSAs: 26 CFR §54.4980B-2, Q&A-8. Dependent care spend-down: Prop. Treas. Reg. §1.125-6(a)(4)(v). The cafeteria-plan provisions cited are proposed regulations on which taxpayers may rely. All read 7 August 2026. General information about statutory deadlines and plan mechanics, not legal or tax advice on your agreement. Your plan documents and your agreement govern, and they may be more generous than the statutory floor.