Qualifying Life Events
| Life Event | Permitted Election Change |
|---|---|
| Marriage | Add spouse and dependents; change coverage level |
| Divorce/legal separation | Remove spouse; change coverage level |
| Birth/adoption | Add dependent; change coverage level |
| Death of dependent | Remove dependent; change coverage level |
| Change in employment status (employee or spouse) | Change or drop coverage if gaining other coverage |
| Change in dependent care provider | Change dependent care FSA election |
| Change in cost of coverage | Change election if cost changes significantly |
Consistency Requirement
The election change must be consistent with the qualifying life event. An employee who gets married can add their spouse to the health plan — but cannot change their FSA election unless the marriage also changes their FSA needs. An employee who has a baby can add the child to the health plan and increase their dependent care FSA — but cannot change their health FSA election unless the birth also changes their health FSA needs.
Documentation
Compliance Note
Document all mid-year election changes and the qualifying life events that triggered them. The IRS may audit Section 125 plans and request documentation of election changes. Without documentation, the IRS may disallow the election change and treat the employee's contributions as taxable income.