Reimbursing employer for flexible spending account purchases when leaving job before year-end?

Question

I had targeted $1,200 for my employer-sponsored flexible spending account (FSA) for the entire year 2006 and used $900 through July. Up to July I had contributed $700 to the FSA plan. If I leave my job in August, will I need to repay the difference of the amount ($900-$700)?

Please include the source in your answer. While the answer to this question seems common sense, loopholes sometimes do exist.

Answer 1

I used to work in Human Resources and this is what we were told to explain to employees. There is risk on both sides of an FSA, if you don't spend all the money you put in, you lose it, you will not be reimbursed at the end of the year if you didn't use all the money. Conversely, all the money is available to you at the beginning of the year. You can choose to use it all immediately and if you quit before you finish paying in, you don't have to pay it back.
I don't know what tax ramifications that has but no, you shouldn't have to pay it back.
I saw plenty of people put in the maximum for the year, go get Lasik in January and quit as soon as they got it done - essentially, they got free eye surgury but thats how it works.

Answer 2

I'm sorry to say the FSA accounting is very straightforward. (No loopholes)

If, for some reason, you leave your job after cleaning your FSA, but before you've made the required deposits, your company must charge back the difference to you. If they don't, it gets treated as extra, taxable income for you.

Also, in most cases, your company has negotiated with the FSA manager to let the employees get paid when claims are submitted.
(Not every FSA can do this. Sometimes, they hold your claims until you've made the necessary deposits.) They can do this because not everyone submits claims at the same time. In fact, a good number of people submit their claims at the end of the year AFTER all contributions have been made. So the entire company's FSA will always have enough money to cover the claims against it.

I hope this helps.

Answer 3

Either repay, or you'll end up claiming it on your tax return. In a FSA, if you reimburse for all money spent, it technically is your employer buying the items. If you don't, the employer paid you extra, which you must claim. It's easier just to reimburse it all.

Answer 4

At my old firm, the employer assumes the risk of the account. I was not required to reimburse my employer for money used that was not at that time withheld.
Source: the representative for our Flex account.

Answer 5

It really can depend on the company. My husband's company is very flexible on their rules and if we don't meet the target, we don't have to pay the extra. Check w/ your human resources--it's that easy.

Answer 6

Yes. You may have used the funds, but you haven't actually deposited all of them into the FSA.