Debit Cards - Unsubstantiated Claims at Year - End

[Guest akwallace]

How is an employer required to handle unsubstantiated claims at year-end? Does a W-2 adjustment need to be done to reverse the pre-tax benefit of the unsubstantiated amount?

Our TPA is telling us that this is not the case - that employers can just "write it off", and I'm not sure what that means.

Thanks.

[GBurns]

Maybe, my brain is still on holiday, I tried very hard but could not understand your post.

Why would an employer be doing anything with claims, Is this a self-insured self administered MERP of some sort? What sort of plan is this etc?

If, as you posted, there is a TPA, Why would the employer be handling anything?

Why would there be any amount of pre-tax unreimbursed claims? The amount pre-taxed is an amount that is set aside in anticipation of incurring claims which are then submitted for reimbursement. The pre-taxed amounts have nothing to do with any claims until eligible claims are submitted. Eligible claims that are submitted were never pre-taxed.

If unsubstantiated claims are submitted, it is usual to reject or refuse reimbursement. What is there to be "written off"?

[oriecat]

With debit card transactions, the substantiation takes place after payment has been processed. EE uses their debit card to purchase their Rx for example. They must then send in the documentation for the substantiation. The problem arises in what to do if they don't do that second step and you then have unsubstantiated claims that have been paid. This is the reason my company will probably not be implementing debit cards.

[g8r]

I'd suggest that you look at Rev. Rul. 2003-43. In the 2 cases (examples 1 and 3) where reimbursement was allowed followed by a lack of substantiation, the employee is indebted to the employer to repay the amount. That's why the use of the debit card was permitted. And, as pointed out, it's why some people aren't wild about using debit cards for their clients.

[Guest akwallace]

Is anyone willing to share how they handled unsubstantiated claims after the close of 2004? We ended up with over 30 employees who did not substantiate at least $500 worth of claims.

The FSA administrator's request for reimbursement was ignored. Next steps according to legal counsel are to add this to taxable income for 2005.

Anyone else have this issue?

[SLuskin]

We have lots of lazy participants. We ask the employer how long after a swipe is made do they want us to wait before turning the card off. Responses range from 7 days to 30 days. The employee is notified at that time that repayment is required. If they do not repay in 30 days, the employer payroll deducts that amount (after taxes), if possible. If the employee has terminated, they get a 1099.