Can employees be reimbursed for their entire health FSA election early in the year?

Can employees be reimbursed for their entire health FSA election early in the year?

QUESTION: For 2023, an employee elected $2,400 of health FSA coverage under our calendar-year cafeteria plan, which is funded solely through employee salary reductions and does not provide for carryovers or include a grace period. The employee has already incurred medical expenses equal to this amount in 2023 and wants to be reimbursed for the expenses now, even though she has only made health FSA salary reductions of $400 to date. Do we have to reimburse all of these expenses right away, or can we limit reimbursements to the amount our employee has already contributed and ask her to resubmit the remaining expenses as additional contributions are made? 

ANSWER: Your employee must be reimbursed for all of her expenses now, assuming that the expenses are otherwise eligible for reimbursement (e.g., they are for medical care incurred during the current period of coverage, and appropriate substantiation has been provided). That’s because IRS requirements for health FSAs include a “uniform coverage” rule under which the maximum amount of reimbursement must be available at all times during the plan year (or other period of coverage), reduced only for any prior reimbursements for the same period. Reimbursement is deemed “available” under the uniform coverage rule if claims are paid at least monthly, or when an employee’s submitted claims reach a reasonable plan minimum (e.g., $50). Thus, reimbursements cannot be restricted to the amount of the employee’s contributions. 

The uniform coverage rule also prohibits accelerating an employee’s salary reductions based on health FSA claims submitted or paid. Note that the uniform coverage rule does not apply to DCAPs, so reimbursements under a DCAP can be limited to the amount that has been contributed, less expenses already reimbursed. 

Source: Thomson Reuters

Can employees be reimbursed for their entire health FSA election early in the year?

IRS issues 2022 version of publications 502 and 503 for medical and dependent care expenses

The IRS has released updated versions of Publications 502 and 503 for the 2022 tax year. Publication 502 describes the medical expenses that are deductible by taxpayers on their 2022 federal income tax returns. Publication 503 explains the requirements that taxpayers must meet to claim the dependent care tax credit (DCTC) for child and dependent care expenses. 

The 2022 version of Publication 502 is substantially similar to its 2021 counterpart. Reflecting prior guidance, personal protective equipment (e.g., masks, hand sanitizer, and hand sanitizing wipes) for the primary purpose of preventing the spread of COVID-19 is now included in the list of medical expenses. Clarifications have been added regarding expenses to treat excessive use of alcohol and drugs, and relevant dollar amounts (e.g., the standard mileage rate for use of an automobile to obtain medical care) have been revised to reflect their 2022 inflation-adjusted values. Publication 502 has also been revised to reflect that the health coverage tax credit (HCTC) is not available after 2021. Publication 503 has been revised to note that most of the temporary changes to the DCTC and DCAP rules that were provided as COVID-related relief are no longer available, and to delete references to those changes. It also references prior guidance under which DCAPs could be amended to allow unused amounts from 2021 to carry over to 2022. 

Source: Thomson Reuters

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