Health flexible spending accounts (FSAs) and health savings accounts (HSAs), which complement employees’ major medical coverage, are key elements of many cafeteria plans. In two legal memoranda, the IRS details how corrections to FSA reimbursements should be made and how the new FSA rollover rule impacts employees’ eligibility for HSAs.
Note: Legal memoranda are intended as private advice from the IRS to a requesting party. They may be used for informational purposes only; they may not be used or cited as precedent.
Ruling #1: FSA overpayment reimbursements may be subject to withholding. Employees who have FSA-connected debit cards, and whose reimbursements are overpaid, must pay back those amounts. The IRS concluded that the five correction methods that are included in the proposed cafeteria plan regulations apply. These methods should be applied during the coverage year. The IRS added that you may apply the correction meth...(register to read more)