Status Change - FSA

[Guest Neno]

Please bear with me as I have only been doing this for about 6 months. If someone has elected to participate in a Health FSA for say $1,000 annually to cover unreimbursed medical and dental for him/herself can they change the amount of the election if they have a status change such as marriage, divorce, birth etc? I didn't think so since this would essentially allow them an open enrollment but I've seen some information that might conflict with this. Any help would be most appreciated as I have new enrollees asking.

Thanks!

[papogi]

They can sometimes change their Health FSA election in those circumstances, assuming the 125 plan doc allows it. Keep in mind that 125 plans are not required honor any of the status changes outlined in IRS 1.125-4. Most plans honor them all, but they are not required to. Assuming the plan allows a change, and IRS consistency rules allow a change, they might only be able to change it upwards, and other times only down. The consistency rules ultimately mean that it all depends on the particular situation. Check out this link to an interactive site which allows you to try out different scenarios:

http://www.changeofstatus.com/

[Guest Neno]

Thank you for your prompt response. I have one other question relating to this. Our document does allow for the changes. Let's assume that someone increases their FSA due to marriage by an additional $200 for the year. Are we responsible to make sure that $200 in claims for the new spouse are submitted? In other words, employee can not submit claims for him/herself for the original amount plus increase correct?

Thanks for your help. I just want to be clear before I talk to the client.

[papogi]

The employee can submit claims on that amount for any qualified dependent or him/herself. While ideally the $200 would only be for the new spouse, there is no way to police this, and the IRS does not need you to. There is no worry.

[Guest Jeff V]

Papogoi, what is your opinion or knowledge on best practices or rules regarding checking/documentation requirements on 125 changes? Can a plan rely on a change form just having "I confirm that I have met one of the qualifying events above..." above the signature line, or is proof (eg, marriage certificate) better/required?

Thanks again.:confused:

[papogi]

As far as I’ve seen, the IRS has never given clear guidance on what to request as proof of a status change. My thinking is that some sort of documentation should be required in all status changes. It may be a letter from an employer in the event that a spouse goes from full-time to part-time, for instance. Some status changes are such that official documents are readily available (e.g., marriage certificates, etc.). If you run into some type of change where no real documentation seems to be available, or the other party refuses to provide documentation, you will have to decide if a signed affidavit is sufficient. I would think it would be in those cases.