HCSA with double insurance

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My SIL just had a baby. She is double-covered by her own insurance from her job, plus coverage from her husband's job. She has a healthcare spending account with her job.

The HCSA administrator (apparently) has no insight into her double coverage, so they've automatically sent her a check from her HCSA for what she would've had to pay, if she only had her own employer's coverage. Since she's double covered, she actually had (virtually) no out-of-pocket expenses associated with the birth of the baby.

She's asking what to do with the check. I feel like she's either got to claim it as income on her 1040 (since she hasn't paid taxes on that income and didn't actually spend it on medical costs) or somehow send the check back.

Any one have experience here?

TIA.

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I don't understand. Why would they send her a check unless she asked for them to send her a check? Money is fungible. As long as she has total qualified medical expenses that are more than what she receives by the end of the year, there is not a taxable event.

I'm editing this response to point out that I'm speaking purely as a lay person. I do not have expertise in this area.

Her company's HSCA is somehow tied into her company's insurance company, so when the insurance company sends her an EOB for, say, $600, the HCSA administrator automatically sends her a check for $600 (assuming she has that much in her account).

In this case, the $600 "liability" shown on her EOB was actually paid-in-full by her husband's company's insurance policy. So she had no out of pocket cost.

Since the HCSA money is pre-tax, I'm concerned that the gov would frown on her just pocketing that check.

solley said:   Her company's HSCA is somehow tied into her company's insurance company, so when the insurance company sends her an EOB for, say, $600, the HCSA administrator automatically sends her a check for $600 (assuming she has that much in her account).

In this case, the $600 "liability" shown on her EOB was actually paid-in-full by her husband's company's insurance policy. So she had no out of pocket cost.

Since the HCSA money is pre-tax, I'm concerned that the gov would frown on her just pocketing that check.


Solley, can you explain further? I still don't understand why they would automatically send her the check. One of the nice things about HSA's is that the money can grow tax free and doesn't have to be used. She has the right to simply pay out of pocket.

BrodyInsurance said:   solley said:   Her company's HSCA is somehow tied into her company's insurance company, so when the insurance company sends her an EOB for, say, $600, the HCSA administrator automatically sends her a check for $600 (assuming she has that much in her account).

In this case, the $600 "liability" shown on her EOB was actually paid-in-full by her husband's company's insurance policy. So she had no out of pocket cost.

Since the HCSA money is pre-tax, I'm concerned that the gov would frown on her just pocketing that check.


Solley, can you explain further? I still don't understand why they would automatically send her the check. One of the nice things about HSA's is that the money can grow tax free and doesn't have to be used. She has the right to simply pay out of pocket.

I suspect OP doesnt have an HSA. All OP says is "healthcare spending account", which could mean different things. For instance, OP says "HCSA money is pre-tax", whereas HSA is post-tax. I guess OP has a "Health reimbursement arrangement" or HRA. I dont know much about these; here is a link that talks about this.

The op might mean the following:

FSAFEDS has partnered with a number of FEHB and several FEDVIP plans, to implement Paperless Reimbursement (PR) which automatically reimburses you for eligible health care, retail pharmacy, dental and vision expenses under your Health Care Flexible Spending Account (HCFSA). PR eliminates the need for you to manually submit a claim to FSAFEDS for many of your out-of-pocket health care costs. With PR, FSAFEDS can save you money and valuable time as well!

https://www.fsafeds.com/forms/paperlessreimb.pdf

As for the reimbursement, there should be no red flag for the IRS, unless you are audited manually.

The correct thing to do would be to un-enroll from the automatic paperless reimbursement, only submit for reimbursements that truly are out of pocket, and report this as taxable income ($600) or (and I am no tax accountant) figure how you have to show to the IRS that your flex spend reduction to your AGI was 1800, and not 2400 (sample amounts) .

^^^This.

Sorry for the terms confusion. Yes, she has a Flexible Healthcare Spending Account...a bucket of $$$, taken from her paycheck, pre-tax, that can be used for medical, dental, etc.

So, manual audit would get her for taxes owed on $600 plus penalties and fees. I'd assume that adding in $600 of non-W-2 income would, itself, probably increase her chances for an audit, yes?

I think I'll tell her to spend half on herself and half on H&B for me.

My HSA is taken out pre-tax.

MilleniumBuc said:   The op might mean the following:

FSAFEDS has partnered with a number of FEHB and several FEDVIP plans, to implement Paperless Reimbursement (PR) which automatically reimburses you for eligible health care, retail pharmacy, dental and vision expenses under your Health Care Flexible Spending Account (HCFSA). PR eliminates the need for you to manually submit a claim to FSAFEDS for many of your out-of-pocket health care costs. With PR, FSAFEDS can save you money and valuable time as well!

https://www.fsafeds.com/forms/paperlessreimb.pdf

As for the reimbursement, there should be no red flag for the IRS, unless you are audited manually.

The correct thing to do would be to un-enroll from the automatic paperless reimbursement, only submit for reimbursements that truly are out of pocket, and report this as taxable income ($600) or (and I am no tax accountant) figure how you have to show to the IRS that your flex spend reduction to your AGI was 1800, and not 2400 (sample amounts) .


I would say unenroll from the automatic program, then DONT claim the next 600 dollars in out of pocket medical costs to the program for re-reimbursement. If you do that, then at the end of the year you will have not taken out any money over your actual out of pocket costs, and you have nothing to worry about, or report to the IRS. If you get near the end of the year and having spent the money, go get your teeth whitened or something to spend that money on a out of pocket healthcare cost. Sucks you cant use it for over the counter stuff any more.

solley said:   ^^^This.

Sorry for the terms confusion. Yes, she has a Flexible Healthcare Spending Account...a bucket of $$$, taken from her paycheck, pre-tax, that can be used for medical, dental, etc.

So, manual audit would get her for taxes owed on $600 plus penalties and fees. I'd assume that adding in $600 of non-W-2 income would, itself, probably increase her chances for an audit, yes?

I think I'll tell her to spend half on herself and half on H&B for me.


Hopefully that's it. I do not know the way the IRS thinks, but with all my flex spend reimbursements, there is nothing reported. The only thing reported to the IRS is how much was taken pre-tax from my paycheck. I do know that they always mention to keep everything submitted (or just the EOBs in her case) because the IRS has the right to check it.

I have been doing the flex account since 2006 and have not been audited for it (standard tax return) --- knock on wood.



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