FSA reimbursement by ex legality question

[Terrasan]

I searched the boards and could not find any information on my question so I hope someone can help me find the answer.

I have joint custody with my ex-wife of our 13yr old child.

She pays for the childs' medical expenses with her husbands FSA and under my support order, I am required to reimburse her 65%. I reimburse her with my HSA account.

My question is about legality and making sure this is a qualifying expense for my HSA.

She is using money that is tax free, getting reimbursed cash (by me) and not having to claim it as income because it is considered "support".

This seems like a sketchy way of using an FSA to cheat the IRS. Would love an explanation here as to the legality of what she is doing. She insists on paying and having me reimburse her because the bill is in her name and says she wants to insure timely payments.

She sends me the medical bills and payment receipts which I keep for my HSA records but since I am paying her and not the medical facility, is it still a qualifying expense under my HSA?

Thanks for any and all help!

[leevena]

I am not an attorney nor accountant/cpa.  I doubt very much that you can use your health savings account in this manner.  Your funds can be used to pay for eligible health care expenses.  If I understand your post, you are sending money to your ex-wife after she has already used a tax favorable account to pay for the eligible health care expenses.  Your funds are not being used to pay for eligible expenses, they are being used to reimburse her.

Did I understand your situation correctly?

[QDROphile]

What impressed me first was the charge to the FSA.  There are potentially two problems with that, the salient one is that in order to have the FSA pay an eligible expense (I am assuming eligibility for the moment), the expense cannot be covered by another source, such as insurance, or in your case, a support obligation ( at least to the tune of 65%).  The concept is pretty simple:  no double dipping. Or perhaps I did not understand the funds flow from your description.

Plus, you should be concerned about leeena's point, but I am not opining on the subject.

Custody and support arrangements are a complicating twist under the rules and careful analysis is required to sort out who is a dependent with respect to any arrangement (FSA, HSA)* as part of determining what expenses are eligible.  One way or another something is not right here, at least to some degree because there is some double dipping going on.

*Such as, is your child a dependent of the employee with respect to the employer FSA?

[Terrasan]

It is complicated and that is why I appreciate the help.

Here is the way that I see it. I would be able to use my HSA for my child even though he/she is not a tax dependent. HSA's specifically address the issue of children of divorce and that my child qualifies as if her mother and I were not divorced.

I keep all the records of the child's medical expenses just in case I am questioned by the IRS.

The double dipping would be happening by my ex. The FSA is in my ex's husbands name and provided by his employer. My ex does not work. That does bring up an interesting point, I don't know about the issue of whether our child is technically a dependent of his. They do claim the child on their taxes and file as married.

This is important to work out now because I don't want to get into any trouble with the IRS because of something my ex is doing and we seem to be having more and more medical expenses come up for the child.

edit: Yes to answer your question Leevena, I am reimbursing my ex with my HSA after she provides me with the bill after insurance is applied and shows me her payment receipt. I have noticed in the past that some of the payment receipts say, "FSA" on them and that is how I know she is using her husbands FSA to pay.

[Luke Bailey]

Terrasan, this is complicated and messy, but maybe the theoretical inquiry is whether these are good expenses for the FSA, which is supposed to be for "unreimbursed" medical expenses. Maybe they are not under your agreement. Just a thought. You and she need to work this out with your CPAs.

[leevena]

Terrasan, if she is paying the bills and using a tax favorable account for those payments, it does appear that you have a problem.  You cannot double-dip.  It appears someone else is paying the expenses first, through the FSA, and then you are reimbursing them.  Still believe you have a problem.

[Terrasan]

After some more research I found some reliable information about this.

It appears that it is fine that I reimburse her through my HSA as long as I have all the supporting documentation (statements, insurance EOB's, payment receipt from ex).

She would be committing tax fraud if she is using the FSA to pay and then reimbursed by me but frankly that is none of my concern. I am doing what I am supposed to do. What she risks doing is her business.

One bit of advice that I did read that might make sense is to pay the medical facility the amount that I owe and if it creates a credit then let them reimburse my ex the amount. That way for my records it shows that I paid the correct amount to a medical facility vs. my ex. Seems like a complicated way to go about it but I want to limit my exposure to her illegal behavior.

[leevena]

I hear you, but would strongly suggest you get professional opinion from cpa/attorney.  If I understand your post your ex is paying for these expenses thru a tax favorable account first.  Your reimbursement of her expenses does appear to be double-dipping.