FSA Reimbursement paid in error.

[Guest Carolynn]

Hi all, I'm new to my job and can't find a specific answer to this question. We have recently discovered that we reimbursed a Dental claim, for services completed in 1999! Our reimbursement was made in August 2001.

We do not suspect fraudulent intentions, however the matter remains that we paid out over $600 in error.

What is the next step? Do we file a 1099? Ask for the money to be returned? Thanks for your help.

[Guest R Blair]

The first issue would be to make sure that the expense truly did not happen during the plan year for which it was reimbursed. I say this because it is a common to get confused with all the different dates flying around.

Although I have not found book, chapter, and verse regulations to prove my opinion: I do believe it is a taxable transaction, even though each party made an error.

To avoid the tangle of taxation, my solution has been to notify the employee of the error in writing and inform them that the transaction will be treated as a salary advance and will be deducted over time. Over the years I have corrected many overpayments such as this and have found that most employees are understanding. If they become combative, send it right up the ladder to a boss who will provide a solution and take the heat if any other action taken later becomes a problem.

[Guest Carolynn]

Thanks for your thoughts. Yes, we're sure about the dates, I have spoken to the participant, and their previous TPA apparently (?) approved this situation. We are the TPA that took over their plan this calendar year.

Since I'm not the employer, it's not as easy for me to get the money back from the participant. But it's a option, I'm sure. I have spoken to the employer and all concerned want to handle this as simply as possible.

Still hoping to hear from other TPA's who have been in this situation. Many thanks.

[Lisa Hand]

If it is a calendar Plan Year thus still on-going, you could also request the participant offset the incorrect reimbursement with valid claims incurred during the Plan Year.

[Kirk Maldonado]

What I've always told my clients to do in this situation is to tell the employee that if he does not repay the amounts within a fixed period (such as one week), the company will issue him a Form 1099 reporting that amount as taxable income.

This has always worked in getting the employee to repay the amounts.