Discussion:Forfeited Flexible Spending Account. Income?
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Discussion Forum Index --> Tax Questions --> Forfeited Flexible Spending Account. Income?
| 29 February 2008 | |
| Is it true that any money remaining in a flexible spending account at the end of the year (plus grace period) is not only forfeited but is now considered income? If yes - is this forfeited amount showing in box 1 of the W2? If not on the W2 how is this accounted for on the tax return? | |
| 29 February 2008 | |
| Yes. Use it or lose it. 2 1/2 month grace period. Employer will add it to the W-2. | |
| 29 February 2008 | |
| For what purpose was the Flexible Spending Account (FSA) set up? If it was for child care it should be shown in Block 10, Form W2. If that is the case and it was truly forfeited, i.e, not received from employer, then fill out Form 2441, both 1st and 2nd page, showing that the funds were forfeited. Then the money will not be reported as income on the tax return. I'm not aware of any other types of FSA that require forfeiture reporting but there may be some. I also know of no requirement that forfeited funds be reported as income. | |
| 29 February 2008 | |
| Anyone have a cite on this? I can see it being income on the employer's books (just as payouts in excess of contributions on a terminated employee would be an expense), but reported on the employee's w-2? I don't see it, but i'm always willing to be edumacated. | |
| 29 February 2008 | |
| The employee should not be reporting income from the forfeiture. Nor should the employer report income from a forfeiture (although the employer may realize experience gains). | |
| 29 February 2008 | |
| The FSA in question was - medical. The info I have stumbled on seems to coincide with Jctmstx; can anyone verify? | |
| 1 March 2008 | |
| An employee's forfeited account balance is NOT added to the W-2. Just leave everything as it was on the W-2, with the original deferral excluded from fed, soc sec, and medicare wages. For the employer, this forfeited balance MUST be included in income. It was originally booked as an expense (payroll), and the negation of that expense must be taken into income.
Assuming that the employer's intra-year books have been tracking the employee deferrals and the employer payments only on the balance sheet (ie the normal way), then after the year-end, or grace period, as appropriate, the net balance of these accounts on the balance sheet is closed out to an income or loss account, usually other income or other expense. It is not uncommon for employers to have losses in this account, although in my experience gains are more common. | |
| March 1, 2008 | |
| Let's make sure we understand this. Client says put $xxx in my flexible spending plan for out-of-pocket medical expenses. Client spends less than the amount set aside, which should also be the amount that was deducted. Now, is Jctmstx saying that the unspent amount gets added to gross income? If that's what is being said, I don't think that is correct. | |
| 1 March 2008 | |
| The employer's experience gain is generally not included in the employer's gross income. | |
| 1 March 2008 | |
| No, I wasn't addressing that issue at all. However, I will address it now. The employer's experience gain is generally not included in either the employer's gross income or the employee's gross income. | |
| March 1, 2008 | |
| Well, not gross income, but the bottom line will be increased if they apply the forfeitures to administrative costs. | |
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