Error made on 2009 election form

[Ken Davis]

Can someone point me in the right direction to find a plain-English writeup of how, if possible, to correct the following situation?

For 2009, one of our employees checked the box for Dependent Care on our pre-tax contribution form for our cafeteria plan/flexible spending account. But, he meant to check the Medical Care box. He didn't catch the mistake then, nor did he catch it after he read the confirmation sent to him by Human Resources showing which box he checked. And, I guess he didn't catch it all during 2009 when he didn't receive any medical reimbursements, or because he didn't look at his check stub.

So, he filed his 2009 tax return and had to pay tax on the unused dependent care benefit. I realize he could have avoided the tax by subtracting the forfeited benefit on Form 2441, but he didn't do that and, anyway, that might mess up what he really meant to do, which is to use the money for some dental work.

Which brings me to my question. How do we fix the error he made on the election form? Send a corrected W-2 showing $0 in box 10? Then let the plan administrator know to transfer the money from the Dependent Care account to the Medical Care account? Anything else?

Thanks,

Ken Davis

Univ. of South Alabama

[QDROphile]

First you have to determine IF you can correct the error. Does the particpant have children? If not, you can probably correct. If the participant has children, it becomes much more of a problem. There is no formal authority for correction, only innformal comments form IRS officials. the stnadard is pretty high for correction because plan cannot accommodate a change of expectations or general mistakes about the consequneces of elections. for example, if he did not have the dental work in the coverage period and timely submit for reimbursement, I would not even try to correct.

[J Simmons]

First you have to determine IF you can correct the error. Does the particpant have children? If not, you can probably correct. If the participant has children, it becomes much more of a problem. There is no formal authority for correction, only innformal comments form IRS officials. the stnadard is pretty high for correction because plan cannot accommodate a change of expectations or general mistakes about the consequneces of elections. for example, if he did not have the dental work in the coverage period and timely submit for reimbursement, I would not even try to correct.

Indeed, those informal comments from the IRS suggest that the PA have clear and convincing evidence that the election made was not the intent of the EE at the time it was made. Keep in mind, the tax free savings of the value of the benefits of all other EEs using the plan (and the ER's 1/2 of FICA on those amounts) is what is at risk if you allow the EE to undo an election that the IRS/courts determine should have remained irrevocable.