How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Megan C Your Own Question
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16547
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
23669918
Type Your Tax Question Here...
Megan C is online now
A new question is answered every 9 seconds

I have an FSA. I went to use the last of my 2012 contributions

This answer was rated:

I have an FSA. I went to use the last of my 2012 contributions at the periodontist in September 2012. The procedure couldn't be performed due to complications. The Dr. later sent me a refund check for $700. Without thinking I deposited that money into my checking account. I since elected to contribute the maximum $2500 for my 2013 plan year. But the company that manages the FSA plan for the company that I work for says that I can't use my FSA credit card until I reimburse the account $700, which I will immediately lose because the 2012 plan year ended in March of 2013 (my company's grace period). So I'm supposed to give them $700 just to lose it? Where does it go, to the IRS? I don't think I'll be doing that. But I may have to lose $700 to save $2500. This doesn't make any sense to me; I mean it's my money. But the FSA management company says that the $700 are pre-tax dollars. OK, I get that. So here's my question: Can I simply file a 1099 and pay the tax on that $700, thereby giving me access to my 2013 FSA funds of $2500?

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

I hate to be the bearer of bad news, but you cannot do as you propose

MyVirtualCPA :

Unfortunately, you would have to reimburse your plan as you did not have the procedure done as planned in 2012.

MyVirtualCPA :

The big drawback to using an FSA account is if you don't use it you lose it.

MyVirtualCPA :

So, there is no way to pay tax on these funds and keep them.

MyVirtualCPA :

I'm truly sorry this is not the news you had hoped to hear

MyVirtualCPA :

The funds lost do not go to the IRS, ironically they go to your employer

MyVirtualCPA :

these offset the situations where people leave the company after using all of their FSA balance without having the full amount withdrawn from their paychecks

Customer:

I see. Well thanks for your assistance. You also answered another question I had about leaving the company before all deductions could be made. Well, I'll just have to deal with this I guess.

Customer:

Thanks again for your help.

MyVirtualCPA :

I'm truly sorry. I wish I had more good news to give you

MyVirtualCPA :

If you would, please rate my response as "excellent" so that I may receive credit for assisting you today

Customer:

No worries. It's not your fault. At least I know now.

Customer:

Knowledge is power, right.

MyVirtualCPA :

Yes, if you leave the company before your deductions is made then the employer is stuck with the cost

MyVirtualCPA :

So, the employer keeps the "lost" funds

MyVirtualCPA :

It's ironic that they do not go to the IRS

Customer:

A cozy arrangement.

MyVirtualCPA :

Yes, I don't personally participate in these plans for that reason. I'm always afraid I won't use my funds

MyVirtualCPA :

I'd do it only if I had a procedure early in the year that I knew the cost before open enrollment ended

Megan C and 3 other Tax Specialists are ready to help you