Fsa Reimbursement Case Study

Issue:
The allowablility of FSA reimbursement, and the exclusion of that reimbursement, for Lasik or radial keratotomy surgery.
Analysis:
According to IRC Sec. 125(f), Flexible Spending Arrangement (FSA) is categorized as one of the qualified benefits under Cafeteria Plans. According to IRC Sec. 125(b), exceptions of participants of Cafeteria Plans will be the highly compensated participants and key employees. Therefore, all participants besides the exceptions stated in IRC Sec. 125(b) will be subjected to FSA reimbursement if qualified medical expenses are incurred.
FSA reimbursement consists the money contributed by both the employer and the employee. The employee’s portion reimbursed will be considered as a return on capital, and will not be included into gross income. However, according to IRC Sec. 105(b), the reimbursement attributed to the employer’s portion of contribution are excludable from gross income only if “such amounts are paid, directly or indirectly…to the medical care of the taxpayer, his spouse, his dependents, and any child of the taxpayer who as of the end of the taxable year has not attained age 27”. The reimbursement attributable to prior taxable year’s medical expense deductions is not …show more content…
Rul. 2003-43, qualified medical expenses can be reimbursed through FSA debit or credit cards. The cards are provided by employers, and to be used limited to physicians, dentists, vision care offices, hospitals, authorized drug stores and pharmacies, and other medical care providers. The reimbursement made through the cards are excludable from gross income, as long as the reimbursed transactions are substantiated to be specifically limited for eligible medical expenses. This permits the possibility of electronic FSA reimbursement. It also applies to client who intends to have Lasik or radial keratotomy surgery, given that FSA debit or credit cards are easy to carry, and electronic FSA reimbursement is generally faster and more

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