As the end of 2020 draws near, the Bolton Compliance Team has received numerous emails from employers asking the same question regarding Flexible Spending Accounts (FSAs) that have a plan year ending on December 31, 2020.
Employees participating in an employer’s FSA are asking the employer to refund their contributions due to the lack of opportunity to spend down their funds. In turn, employers are asking if it is permissible to issue a refund to FSA participants.
The Bolton Compliance Team has answered this question along with important details regarding permissible ways to treat plan forfeitures.
The bottom line is that, at this time, it is not permissible to refund a participants contributions to the FSA plan.
Unless the IRS makes a change or new legislation is passed, there is no option for the employer to do this without violating the terms of its plan and endangering the tax-advantaged status of the entire plan.
If you want to hear more from Michelle Cammayo, be sure to sign up for the upcoming Cammayo’s Compliance Talk on Dec. 16: https://register.gotowebinar.com/register/4157668386971407885