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Employer Trying To Get FSA Overspend

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I was recently stumped by this recent reader question about Flexible Spending Accounts and was hoping someone here could shed some light on it.

I recently read an article dated May 10, 2005 about Flexible Spending Accounts. You stated that “If you leave the company at any time.., you aren’t required to pay back the amount you’ve already spent and your employer foots the bill.” Where did you get that information? My husband is leaving his job after 6 months and we have already used the money from his account. His company is trying to tell him that he has to pay this money back. Do you know if there is an official IRS regulation or anything else that we can site? We are afraid that they are going to take it out of his last paycheck. Can they do that? How can we stop them?

When I scoured the IRS.gov site about Flexible Spending Arrangements, I could only find the “use-it-or-lose-it” provision but not anything about paying back an FSA overspend. I could only recall from my own experience and those of people I’ve talked to about this as my backup but didn’t know if there was some codified rule out there I was just missing. The reader’s husband is leaving this Friday and was hoping to have some good ammunition to fight the company so if you know of anything, please do share either via email or in the comments below.

Thanks!

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39 Responses to “Employer Trying To Get FSA Overspend”

  1. matt says:

    I think there is a difference here if it is a Medical FSA versus a Dependent Care FSA. Medical is prefunded and Dependent is paid as you fund it. Can they ask for Dependent FSA overpayment back? I know that Medical they can not.

  2. MANDI says:

    I see many posts where everyone is judging everyone else. Many of you seem to think that just because someone used their flex spending and then leaves a position they are “unethical” for not returning it. You really need to walk a mile in someone’s shoes before you spout off. I am a left leg amputee and am missing my hip joint. I have worked my whole life and have used flex spending for years to help off set my medical costs (which reach into the thousands every year). This year I worked at a company that was forever “forgetting” to pay us all of our hours, demanding that we pay for all of our own office supplies, copy paper, etc. I made $10 per hour….I couldn’t afford this. To make it worse the doctors that I worked for are driving porsche and BMW’s as their “back up” cars. They screamed adn yelled at the “clerical staff” daily. Often times cussing at us in front of patients. I finally had enough last Friday and I left. My next payday would be today and surprise surprise they are holding my check….because I used my FSA dollars already. It’s illegal I know, but I do not have the money to hire a lawyer and fight them – they know that. So, not only did they get a great deal of my money in supplies, they also got my last paycheck…..this paycheck also had hours on it that should have been paid out in the previous pay period but were “forgotten” about and not put on my check. So, I am loosing money all the way around. Just asking some of you not to judge so darn quick. Some employers are unethical and do not deserve repayment of anything!

  3. M says:

    Quick Q:

    I had mistakenly elected for Dependent FSA and had deductions in 6 pay cycles. I have stopped it now, but is it possible for the Company to return this money to me (i.e. Cancel this Dependent piece and return the amount – after deducting taxes of course). I am still continuing on my regular FSA.

    (I am told that Dependent FSA can only be used for ChildCare and I do not have children).

    Is this money lost for ever ? Are there any other expenses for which I can use this money for?

    Thanks in advance for your help in this regard

  4. Katie says:

    The end of January is an ideal time to leave a position because you will be eligible to reimburse medical procedures in the first part of January with a 90% employer match. It’s called the Uniform Coverage Rule, and knowing about it shows you’ve done your homework. If you say it’s unethical, you work for the IRS.

  5. Josh says:

    People love to spout of a bunch of B.S. and really have no idea what they are saying.

    As said a large number of times above and I’ll summarize.

    If you quit/lose a job and you have extra money in your account you lose out. Sorry that’s how the FSA works.

    If you quit/lose a job and you have spent more than you funded you do not have to pay it back. Sorry that’s how the law works.

    Not ethics- simply the law.

    Now where does ethics come in? Funding the full amount for the next year, getting Lasik in January and then promptly quitting a job is unethical. At that point ask if you can live with your conscience, and decide.

  6. Dave A says:

    Employers get to keep unspent funds. Employyess DO NOT have to pay back used amounts if they leave. It is not stealing. It is the law.

  7. Mez says:

    Some of you need to look up the term INTEGRITY in the dictionary.

    In this day and age, no employee should ever have unused funds in their FSA at the end of the year. It’s as siimple as going to Walmart and purchasing extra contacts, bandages, cough medicines, etc.

    So the employer probably sees a few dollars left over in some accounts, but would take it in the shorts from everyone of you who thinks it’s okay to not have to pay back money that you did not set aside. Isn’t that the definition of stealing?

    Conscience be damned, this isn’t an ethical or legal dilema. Taking something that isn’t yours is theft. Just because you can’t be prosecuted for it doesn’t make it right.

  8. Rach says:

    I don’t understand the “ethical” dilemma here AT all. I have many health problems and my employer wasn’t letting me leave to go to dr. appointments or time off for much needed procedures. So when open enrollment came, I knew I would need a lot of Flex spending, and I also knew that I would most likely quit long before the year was over. I used every penny of my flex spending on those much needed procedures and then I quit. If the company tries to get it back, I won’t pay it. If you do your research, most companies come out ahead because of money that is unspent and they get to keep it. And also, as of a new rule for FSA, you cannot use it for over-the-counter supplies or medicine anymore. There are a few exceptions to this, you can get an RX from your DR. for some items like sunscreen and they have to pay for it. Bottom line, I may have played the system, but those are the rules and I don’t feel one bit guilty. They assume the risk, as do I. I didn’t steal anything. I followed the law and did nothing wrong. The fact that HR companies won’t even let you pay it back if you want tells you that it isn’t wrong. Healthcare is such a joke in this country, I will take whatever help I can get.

  9. chad says:

    Mutual risk. I don’t agree with the system or the law, but I will abide by the rules and be opportunistic. If enough people do this, when there’s a flawed system filled with perverse incentives, then they’ll fix the damned thing. FYI my wife and I were also on food stamps all throughout medical school. I’m leaving my job in a couple weeks and I’m going to LensCrafters to buy 6 pairs of Raybans and Prada prescription sunglasses before I do in order to drain my account…. and I have a clear conscious before God and man….


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