Correcting FSA withholding error

[PamSam]

I am in Minnesota...

I recently discovered an error on my paycheck. My employer failed to properly deduct the money I had allocated for my FSA in 2008. I discovered the error when I made a change to my FSA election for 2009 (reducing my contribution) but did not see an increase in my take home pay.

When I brought the error to my employer’s attention, I was told that I will have to repay the money to my health insurance company out of pocket. Since the money was supposed to have been collected on a pre-tax basis, I think I should be able to pay it back through pre-tax withholding.

How do I get my employer to work with me to correct the error?

I am not a highly compensated employee. It will take almost three full paychecks to pay this money back. Additionally, I believe that proper withholding would have put me into a lower tax bracket. I cannot afford to hire a lawyer or tax advisor to make sure this is handled correctly so I will probably just end up using my emergency cash fund on this.

Thanks for taking the time to read this post. Words of advice are greatly appreciated.What is the name of your state (only U.S. law)?

 

[LdiJ]

I am in Minnesota...

I recently discovered an error on my paycheck. My employer failed to properly deduct the money I had allocated for my FSA in 2008. I discovered the error when I made a change to my FSA election for 2009 (reducing my contribution) but did not see an increase in my take home pay.

When I brought the error to my employer’s attention, I was told that I will have to repay the money to my health insurance company out of pocket. Since the money was supposed to have been collected on a pre-tax basis, I think I should be able to pay it back through pre-tax withholding.

How do I get my employer to work with me to correct the error?

I am not a highly compensated employee. It will take almost three full paychecks to pay this money back. Additionally, I believe that proper withholding would have put me into a lower tax bracket. I cannot afford to hire a lawyer or tax advisor to make sure this is handled correctly so I will probably just end up using my emergency cash fund on this.

Thanks for taking the time to read this post. Words of advice are greatly appreciated.What is the name of your state (only U.S. law)?

I am a tax professional and I am totally confused by what you are stating. You cannot take more out of an FSA than what actually exists in the FSA.

The way that the whole system works, its that you have medical insurance with a high deductible, and then you have an FSA (pre tax dollars) that allows you to pay unreimbursed medical expenses. The FSA is completely unrelated to your insurance company therefore I see no way that you could owe your insurance company any money due to an underfunded FSA. As a tax professional what I really DISLIKE about FSAs (as opposed to HSAs) is that they are usually a use it or lose it set up...which means that many people lose pretax dollars that they contribute to FSAs, because they do not fully use them...which only benefits the employer.

However, if somehow your company was crediting money to your FSA that was not coming out of your paycheck (which would be REALLY wierd), or was not coming out of your paycheck based on the employer/employee share (again, would be really wierd) I could see how your employer would think that you owed THEM money.

You really do need a consult with a tax professional with all paperwork in hand.

 

[racer72]

You posted in the wrong category, delete your post and put it in the Pay and Benefits forum.

 

[PamSam]

I am not sure why this keeps posting into the wrong forum...I deleted and reposted but it came up in the auto forum again. My apologies...

In response to the first poster...

I don' get it either. All I know is that the money for the FSA was not deducted from my paycheck, but the FSA was funded. When I found the error, I brought it to the attention of my employer with the full expectation that I would have to pay the money back. I am not trying to get out of paying...but I want the money to be taken out of my checks on a pre-tax basis as it was supposed to have been done in the first place. The problem is that my employer is saying that I have to pay it back after I have been taxed on the funds.

I will try one more time to get this in the right section.

 

[cbg]

Don't bother. No matter which forum I open, it brings me here. There is clearly something wrong with the site and hopefully the administrators will be able to correct it soon.

 

[ecmst12]

The "use it or lose" it thing has benefits both ways. If you use your whole allotment of FSA money in January (which is legal) and then leave your job in June having only contributed half the amount, they can't come after you for the other half. So I suspect the situation may be the same here. The tax year is over, it may be too late for anyone to recoup.