How can I dispute an FSA expense being reported as taxable income by FSA administrator?

[brianpressman]

If an FSA administrator won't accept proof of a medical expense (because they say it is past the plan filing deadline) and they will now report the claim as taxable income--- is there a way to dispute the income with the IRS ? Im thinking form 4852 would be the way to do it. 

[SweetieJean]

The IRS will not intervene in a contract dispute between you and the FSA plan. Read the plan document, and then see a lawyer if necessary.

[brianpressman]

Interesting- so the IRS has no rules about submitting things like proof?  Those rules would be from the plan administrator?

[bine22]

the question is if they are correct that the proof was filed after the filing deadline for the plan. If they are wrong, you need to fight them

[SweetieJean]

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[SweetieJean]

Under a special rule, employers may, IF THEY CHOOSE, offer participating employees more time. So you must read the plan documents.

[Opus 17]

A medical FSA is typically not reported on your tax return one way or the other, so I'm not familiar with what the plan administrator will do in this case.

Presumably you used a credit card linked to an FSA to pay a bill, then submitted documents, and the plan administrator claims that the expense was not allowed.  This is due diligence they are required to perform, because if they allowed non-allowable expenses, the employer could get in trouble with the IRS.  That doesn't mean they are always right.  But, do you know what form or how they plan to report the matter to the IRS?  Normally medical FSAs don't issue any forms or reports (unlike HSAs which do issue reports).

[Opus 17]

Also, if the plan rule says that the expense must be incurred in the 2016 calendar year and the bill must be submitted by X date in 2017, that's generally not negotiable.

[brianpressman]

Thanks Opus & Sweetie.  This helps a lot.  I used the debit card at a doctor's office for a copy and at a chiropractor.  I never submitted proof because i figured that since the CC machine used was coded as ABC Doctor's Office and ABC Chiropractor they'd be fine.  Nope.     The letter the FSA sent indicated my former employer would issue a new W2 for me and say the $300 was taxable income.    I have no idea what the plan document says about this stuff but I will request it.   Since this all sounds more like a contract dispute between me and the FSA and not an IRS rule I suppose i could ask a  state employment regulator for help.  The taxes on $300 is not the end of the world but the whole thing just makes me angry-- since these expenses were medical copays.

[Opus 17 · Accepted solution]

Copies of your medical records are probably not allowable expenses.  

When you enrolled in the FSA and got the credit card, you probably agreed to submit proof of expenses.  And there is probably a date by which those reimbursements need to be submitted.  It may be the case that, when the FSA is administered by the insurance company, the information gets automatically transferred across company offices.  But unless your plan says "you don't need to submit receipts because we will get the info on our own" then you are probably stuck on this one. You assumed that because some expenses did not require proof that all expenses would not require proof, and that may have been a mistake. Read your plan documents, agreement to use the credit card, and other terms and conditions carefully.

[dmertz]

Perhaps 'copy' was a mistyping of 'copay.'

[Opus 17]

Makes sense. Incidentally, if the expenses are added back to your W-2, then you can deduct them on schedule A as itemized medical expenses. However, due to the limitations on the deduction, you probably won't get a benefit.

[brianpressman]

Correct! I had a typo-  it is copay 🙂  And yes, the $300 won't help much on my schedule A.   I requested the plan documents and will be interested in what they say.  I live in California which is usually pretty consumer friendly.  If there is any ambiguity in what the plan doc says i'll happily try to get some help.