IRS Information Letters Confirm Cafeteria Plan Reimbursement Fundamentals
The IRS released three information letters earlier this year (on March 25, 2016) to confirm the fundamental principles of cafeteria plan design. The letters do not provide new information, but simply reiterate what we already know about cafeteria plan design and administration.
What do the letters say?
Here are the main points of the letters:
- Information Letter 2016-0001 confirms the longstanding rule that health FSAs cannot reimburse insurance premiums.
- Information Letter 2016-0009 explains that if a spouse paid premiums on a pre-tax basis, the amounts paid to an employee to reimburse a spouse’s health premiums may not be excluded from the employee’s income.
- Information Letter 2016-0013 explains that if an administrator determines that documents from a physician’s office are inadequate to substantiate a claim, it is the employee’s responsibility to submit any additional documentation needed for reimbursement. Since health FSAs can only reimburse medical expenses that the employee substantiates, reimbursement of ineligible expenses (those that cannot be substantiated) puts the health FSA’s nontaxable status at risk.
If you have any questions, please contact your Client Solutions team.
Compliance Quarterly is being provided as an informational tool. It is recommended that plans consult with their own experts or counsel to review all applicable federal and state legal requirements that may apply to their group health plan. By providing this publication and any attachments, Meritain Health is not exercising discretionary authority over the plan and is not assuming a plan fiduciary role, nor is Meritain Health providing legal advice.