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FAQ: Administrators: Medical FSA

Question: What if an employee terminates, having received Medical FSA benefits in excess of deposits?


Flex plan regulations require that Medical/Dental/Vision Care FSA benefits be available in the full annualized amount anytime during the plan year.

An employee who contributes $100/month can therefore be reimbursed for up to $1,200 of eligible expenses anytime during the plan year.

It is possible for an employee to terminate with a negative Medical FSA account balance. The IRS places this risk upon the employer, in the same fashion as the employee bears the "Use It Or Lose It" risk. Employers cannot recover this deficit from the final paycheck, or take any other recovery steps.

Employers control this risk by placing a maximum on allowable Medical FSA contributions.

What about the occasional terminating employee who wishes to repay an "overdrawn" account?  The employee can elect COBRA, and continue monthly (non-deductible) Medical FSA contributions until the account is reimbursed for benefits paid.

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This publication is designed to provide accurate and authoritative information regarding the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

Some portions of an answer may reflect the specific administrative practices of our firm, and may not be universally applicable to all flexible benefit plans.

If you have further questions, please email us.