CCA 201012060: Health FSA reimbursements are not limited by contributions to date

Plain-English summary

Chief Counsel advised that the uniform coverage rules require a health flexible spending arrangement to make an employee’s full annual election available throughout the coverage period. Reimbursements therefore cannot be based on the amount the employee has contributed by a particular date. If reimbursements exceed contributions when an employee is laid off or terminated, the employer cannot recoup the difference from the employee. The advice addresses the cafeteria-plan rule and does not decide a taxpayer-specific liability.

Ruling snapshot

• Question: May a health FSA limit reimbursements to the employee’s contributions through the date of layoff or termination?
• Outcome: Advice given
• Key authorities: IRC § 125; Prop. Treas. Reg. § 1.125-5(d)

Full text (IRS public release)

ID: CCA-1217103-09 Number: 201012060
Release Date: 3/26/2010
Office: ----------------------------
UILC: 125.01-00

From: ------------------
Sent: 12/17/2009
To: --------------------
Cc: ---------------
Subject: Health FSA Uniform Coverage Rules

--------As per your request, attached is my written response.

The cafeteria plan rules require that a health FSA provide uniform coverage throughout the coverage period (which is the period when the employee is covered by the plan). See Proposed Treasury Regulations Section 1.125-5(d). Under the uniform coverage rules, the maximum amount of reimbursement from a health FSA must be available at all times during the coverage period. This means that the employee’s entire health FSA election is available from the first day of the plan year to reimburse qualified medical expenses incurred during the coverage period. The cafeteria plan may not, therefore, base its reimbursements to an employee on what that employee may have contributed up to any particular date, such as the date the employee is laid-off or terminated. Thus, if the employee’s reimbursements from the health FSA exceed his contributions to the health FSA at the time of lay-off or termination, the employer cannot recoup the difference from the employee.