Mistake made in choosing Dependent Care instead of Healthcare Reimb. A

[Guest M Deane]

One of my employees signed up for Dependent Care Reimbursement Account effective 1/1/99 (beginning of plan year). He has just informed me that he thought he could use this money for medical expenses for his spouse, which he can clearly not. The problem arises because the employee does not have any dependents in a day care environment that he can get reimbursed for the money he has already contributed. Has anyone had this situation happen before and if so, how did you handle it? Our open enrollment paperwork goes into extensive detail about how the Reimbursement Accounts work, plus, the employees also receive a confirmation statement which clearly states the elections they have chosen for the year.

[Guest Deb H]

Well I used to work for a company that only did FSA and COBRA. According to IRS guidelines, if the participany clearly does not have any young children that would be in daycare, the company should let the employee change his or her election. This happened alot with my clients, and as long as they don't have children daycare age, you should change them.

[Guest K Wermager]

How about a person who thought over the counter vitamins were reimbursable and she had added $500 to her annual election for this. Now we tell her they aren't a reimbursable expense, even with a Dr.'s note. Can we let her reduce her annual election by $500. (We are in the middle of the plan year)

[Joe Priselac]

M Dean,

This employee is unfortunately out of luck. I disagree with Deb H. Steve Martin used to have a comedy routine regarding the IRS. His line was I FORGOT.The IRS doesn't buy that logic.If they did we could disregard the rules and claim we had no idea.The regulations do not cover someone signing up for daycare who has no children and then realising that they are about to lose their money allowing them to change their election.We have all encountered people who go through life in a coma. Sometimes they have to bear the consequenses.K Wermager's question requires the same answer except that vitamins prescribed by a doctor for the treatment of disease are permited. The cite is Neil, Garnett, TC Memo 1982-562

[Guest M Deane]

Thank you all very much for your responses. I spoke with Harry Becker of the IRS yesterday. He informed me that because this particular individual does NOT have a dependent that is of daycare age, that I can reimburse this money to the employee. He said that this is a case where the employee clearly "made a mistake". I was very surprised by the IRS's stand point on this!

[Guest bswift]

the irs has allowed taxpayers in the past to use the "mistake" rule to either refund erroneous deferrals or, the more likely situation, transfer monies from the dependent care account to a health FSA. However, it generally had to be a clear mistake. Harry seems to be singing from the correct page of the irs hymnal.

[Guest nb]

What about the probable difference in the plan limitations between the dependent care and flex plan. Was his initial enrollment within the limitations of the flex plan? Would you allow a change in the amount?