What is an Improper Payment?
The IRS defines Improper Payments as any of the following:
- Ineligible Expenses: Examples include cosmetic procedures, expenses incurred outside of the plan year, prepayments for goods or services, or any other expense not eligible for reimbursement under the Plan rules.
- Expenses requiring documentation for which no documentation is provided. For example, an employee has a hospital bill for $901.23 that requires a receipt because it is not equal to a co-pay amount. If the receipt is not provided by the employee within a reasonable period of time (35 days) the expense is deemed an “Improper Payment”.
What is a Repayment Due?
Improper Payments from an FSA create what 24HourFlex calls a “repayment due”. A repayment due can be paid online by employees from a checking/savings account or can be repaid by sending a check to 24HourFlex.
Memorandum 201413006, issued by the IRS Office of Chief Counsel, clarified the IRS expectations about how employers should handle Improper Payments. This memorandum provided helpful guidance for employers and third party administrators which serve as the basis for the process outlined below.
How are Repayments Due Handled by 24HourFlex?
1) 24HourFlex will send email or written notification when a repayment due has been created on an employee’s account. This communication will explain why the repayment due was created and provide details on how the employee can repay the expense.
2) An employee will have 15 days to repay the expense from the point the repayment due is created.
3) If the expense is not repaid within the 15 days communication is sent to the employee reminding them that the expense must be repaid immediately and that their employer may withhold the amount from their paycheck if they do not take further action.
4) If the expense is still not repaid 24HourFlex will contact the employer and provide the employee’s information and the repayment amount so the employer may withhold the expense from the employee’s next paycheck. This will typically occur within 30 days of the repayment due being created.