Q.- An employee participates in our health care FSA. The employee’s child is getting braces in January 2014. The orthodontist is starting a treatment plan in the fall this year (2013). If the employee pre-pays for the orthodontia, she will get a discount from the orthodontist. She asked if the pre-payment can be reimbursed from her 2013 health FSA, even if the braces are not placed on her child’s teeth until 2014.
A.- Probably yes, to the extent there are funds in the 2013 health FSA. A health FSA may permit reimbursement of advanced orthodontia payments. Generally, an expense under an FSA must be incurred during the period of coverage (including any grace period). The general rule is that an FSA may not make advance reimbursement of future or projected expenses, and an FSA cannot reimburse an expense that has been paid but not incurred. However, there are special rules that apply to orthodontia expenses. IRS rules provide that a health FSA may reimburse advance payment for orthodontia services, so long as the employee has actually made the payments in advance to receive the services. Under these IRS special rules, the orthodontia services are deemed incurred when the employee makes the advance payment, instead of when the child sits for the orthodontia services.