Flexible spending account reimbursement

[Guest paybdb]

We have a situation with our flex spending account in which some participants were reimbursed more than they had deducted for the year. We are still researching how this occured but in the meantime need to plan on how to correct this. It has been suggested that a 1099 be issued for the excess amount or that we contact the participants and request that the excess be paid back. Has anyone had a situation such as this and if so, what correction did you use?

Thank you!

[papogi]

In March, 2002, Harry Beker of the IRS said that if a health FSA reimburses an expense that is later determined to be in error (e.g., the expense was not for medical care, or the expense exceeded the employee's limit), the employer cannot just report the excess reimbursement amount on the employee's Form W-2 as imputed income. Rather, the employee must repay the amount to the employer with after-tax dollars (e.g., by writing a check). These were non-binding remarks, however. I think the IRS has backed off this a little recently, but I can't remember where I saw this more relaxed opinion. In any event, going the route of asking the participants for the money seems to be the safest. Depending on the situation involved, the employees might return the money with little problem.

[Kirk Maldonado]

If the participants are no longer employed there, I would guess that the odds of collecting the money are close to zero.

[papogi]

Yes, but paybdb's post says nothing about these employees not working there, It sounds like a case where they are still employed there, but they have been given too much money through their FSA.

[Kirk Maldonado]

The post didn't say that they were still employed either.

The operative word in my prior post was "if".

If the participants are no longer employed there, I would guess that the odds of collecting the money are close to zero.

[Sandra Pearce]

Another take on the original post could be that the participants are former employees who were paid an amount up to the amount they elected for the year, but that they terminated prior to contributing their entire annual election. In that case there would be no error and nothing to correct.