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Flex-Ed: Think before you "double dip" with your FSA!

Basics

Whether you're new to flexible spending accounts (FSAs) or consider yourself to be a tax-free wizard, you've probably been warned about "double dipping." And if you've read the fine print on any claim you've submitted, you may have already stated you won't double dip.

Basically, double dipping is being reimbursed for the same expense twice, which can happen a lot of ways when managing your FSA. While it's not technically illegal, it's highly unethical and could get you in serious trouble with your employer.

Why? Because by claiming FSA reimbursement you're unable to seek payment for things already paid for pre-tax, or things you intend to pay with another tax-free health account. This can happen without even knowing it.

It's up to your employer to hire an administrator to make sure plans are compliant with the IRS. The IRS says employers (or administrators) have to ask for a written guarantee by the participant that they will not double dip.

If double dipping goes by unnoticed by the administrator, the whole plan could be considered non-compliant and everyone in your company could lose the benefit.

Even worse, if the FSA plan was found to be out of compliance, all those tax-free benefits could instantly become taxable to employees. And we wouldn't want to be the person responsible for that mistake. So, let's explore the most common ways double dipping can happen and how you can avoid it.

Double expensing

One of the most common forms of double dipping is by paying for an FSA-eligible expense with your FSA card, and then submitting the same expense for reimbursement. Most benefits administrators can catch these mistakes pretty quickly. But if a claim does go through and you get reimbursed twice for the same expense, you'll have to pay it back to your administrator if they become aware of the issue.

Doubling expensing on separate accounts

Let's say you and your spouse each have FSAs through your respective employers. If you pay for a copayment or FSA-eligible product and submit a claim for that expense under both accounts, this is another clear example of double dipping.

To avoid this, make sure to keep your FSA claims separate for each account to avoid confusion.

Wellness plan double dipping

Employee wellness plans have become popular in the last few years. But this has created new ways to commit some financial foul play. According to Business Management Daily, the IRS identified wellness plan double dipping as something to watch for.

Basically, employees are paying for wellness program premiums with tax-free funds, and then getting these premiums reimbursed. Technically, wellness programs are "employer contributions," and can't be reimbursed through plans like FSAs or HSAs.

Double dipping can be an honest mistake, but if you make a real effort to double your reimbursements for qualifying healthcare expenses, you're probably not going to get away with it. And I can't imagine anyone wants to deal with the IRS (or an angry HR department) any more than they already do.

Stick to the honest path: Use your FSA card whenever possible, and keep your receipts organized to avoid any issues down the line.

New to FSAs? Need a refresher course in all things flex spending? Our weekly Flex-Ed column gives you a weekly dose of FSA Living 101, offering tips for making the most of your tax-free funds. Look for it every Thursday, exclusively on the FSAstore.com Learning Center.

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