FSA admin error needing to refund from prior year

[pattyp]

I am a payroll manager for a company that is part of a bigger company. We have separate EIN numbers but are part of the bigger companies benefit plans. Recently HR came to me and stated that I needed to refund $200 to an employee due to the FSA funds not being sent to the TPA. Per HR, the TPA is refusing to accept the funds due to it being from 2016 and it now being 2017. This was found out when the employee went to make a claim and was told there were no funds. This is clearly an admin error, and now I need to know if I have to go back and do amendments for each quarter this affects for 2016, or can I refund the money to the employee this year and tax accordingly?   I realize there are more issues associated with this, and am following HR's request, but on the payroll side, I just want to do my due diligence and have clean hands if there is ever an audit. Thanks for any insight. 

[Chaz]

Depending on the circumstances and the terms of your cafeteria plan, you may be able to adjudicate the claim manually and, if the claim if for a qualifying expense and was timely submitted, reimburse this employee under the FSA without using the TPA.

You and your HR department should speak with counsel as resolving these issues are highly dependent on the facts.