Fired employee over-reimbursed from FSA

[Guest Barney Byrd]

An employee is notified that he is being let go as of Aug. 31. To date, his FSA has reimbursed his family's health care expenses based his expected annual contributions, leaving him over-reimbursed by about $1,500.

Does anybody know how employers normally handle this situation? As I see it, the employer could reduce the employee's last paycheck by the over-reimbursement (assuming the gross amount of pay is sufficient) or the employer could gross up the employee's total wages on his 2002 Form W-2.

[Mary C]

Federal regs prohibit you from collecting the amount reimbursed but not yet contributed. And you can't gross up the employees wages on the W-2. Part of qualifying as an FSA plan is that it would need to operate as insurance and that the plan is at risk for the full annual pledge contribution from the first day of the plan year.

Just as the plan gets the forfeitures at the end of the year, the plan could also lose money when the employee gets all the reimbursement early in the year then leaves.

[Guest Barney Byrd]

Thanks for your help.

[Guest yperez]

Do you know where i can find actual documentation to back your answer up? You mentioned Federal Regualtions, is there a statue number or something I can read more on this?

[papogi]

The uniform reimbursement requirement is outlined in 125-2 Q7(B). You can find it here:

http://www.125plan.com/Section%20125-2.pdf