Terminated Employee & Severance Pay

[Guest sphile]

If an employee is terminated at the end of this month, but will still receive 3 months severance pay & be covered under the employers health insurance, can they still participate in the FSA?

[Guest JerseyGirl]

I am assuming you mean the Medical FSA. If the scheduled contributions are withheld on a pre-tax basis from the severance, yes they can. For the Dependent Care FSA, the regulations state that the participant (and spouse, if applicable) must be either gainfully employed or seeking employment. It is my guess that a terminated employee would be seeking another position, so they should qualify for continued participation in both