My wife's employer terminated her earlier this year and on her last paycheck, they deducted all the pro rata-deductions for the remainder of the year for the FSP. Under IRC 125, the employer is not permitted to do this, but they maintain that their plan document says they can. I maintain that they then have an unqualified plan, rather than a tax-favored, qualified plan, which requires that the plan must be treated as an insurance plan with risks. BTW, they also keep any amounts not reimbursed to the employee, but deducted.
According to what I have read, if the IRS reviews their plan and finds it to be unqualified, they will require the employer to refund all the contributions they withheld, and tax them on that previously untaxed income. The employer will remain responsible to the Plan for the medical reimbursements they paid out.
What procedure do I follow to start the process of holding the employer responsible for their malfeasance?What is the name of your state (only U.S. law)?
According to what I have read, if the IRS reviews their plan and finds it to be unqualified, they will require the employer to refund all the contributions they withheld, and tax them on that previously untaxed income. The employer will remain responsible to the Plan for the medical reimbursements they paid out.
What procedure do I follow to start the process of holding the employer responsible for their malfeasance?What is the name of your state (only U.S. law)?
