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FSA checks that have not been cashed.

Hello,

Wondering how others handle this. We have outstanding FSA reimbursement checks through our third-party administrator from current and former employees. These are reimbursement checks that have been sent to the employee and the employee has not cashed them. These can go back years, and involve employees that no longer work for us, or may also be deceased. What are the options that we can do? How have others handled this?
1. Are we able to put a time limit on these, and if they do not cash a reimbursement check that they forfeit the reimbursement?
2. If the check is reissued, we have no way of knowing if the employee’s address is current, so it could just be another check written that goes uncashed.
3. Is there a point where the TPA writes off the uncashed funds and returns the funds to us?
4. Are there any IRS regs that address this?

I’d love to hear some suggestions.

Thanks,

John

Comments

  • Assuming the payments were made timely under IRS rules for FSA distributions, the funds have been constructively received by the payees even if not actually converted to cash. So there should not be any tax issues. The uncashed checks represent unclaimed funds that do not belong to the TPA or to the employer - the funds belong to the employees. Make an effort to locate the employees (or former employees) and notify them of the uncashed checks. In cases where you are not able to locate the employees, check your state's escheats (unclaimed property) laws to see if and when you need to turn the funds over to the state.

    The laws vary by state. For example, in Michigan, an unclaimed check of more than $25 is to be turned over to the state three years after it was issued. In North Carolina, wages and other compensation for services is considered abandoned one year the compensation becomes payable.

    So, you will need to check the state unclaimed property law to see how the FSA checks are to be treated and, perhaps, who is responsible for reporting and turning over the funds.

    Usually, you report the employee's name and last known address.