Sometimes one question leads to another. Here is a string of questions we get often with respect to Flexible Spending Account programs.
Q: Do I send you the FSA payroll contributions that are taken from the employees’ paychecks?
A: No, we do not hold any funds. FSA contributions stay in your bank account.
Q: If you don’t hold the FSA funds, how do you know what we’re taking from the employees’ paychecks?
A: We rely on you, the employer, to notify us when employees experience a qualifying event (termination of employment, death of a dependent, etc.), go on a leave of absence, or enroll in the FSA plan.
Q: When do we need to tell you about an employee who experiences a qualifying event?
A: We need to know about these events ASAP, especially if an employee terminates from the company. This will help us prevent reimbursing claims incurred after termination.
Q: Suppose a terminated employee has been reimbursed more than they’ve contributed. Can we deduct the overspent amount from their last paycheck?
A: No, you cannot. You are only able to take their normal payroll contribution from their last paycheck.
Q: An employee is set to forfeit their FSA funds because they didn’t submit enough claims to be reimbursed versus what they contributed during the plan year. Can we just give them their funds with after tax dollars?
A: This is not allowed. That’s why the FSA is called the Use-It or Lose-It plan.
Q: If there are forfeitures from employees at the end of the plan year, how do we handle the funds?
A: The money is in your bank account. Read our blog article on ways to use those forfeited funds.
Q: If someone terminates, does SBA refund us or do I need to pay SBA when reimbursements were more than what was deducted from the employee’s paychecks?
A: No, remember SBA does not hold FSA funds. You will need to mark losses or gains appropriately for all terminating employees at the end of the plan year.