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Both myself and my spouse have FSA accounts through our jobs. We both submitted the same medical expense to each of our individual accounts. Is there a penalty for doing that? Do FSA companies submit expenses to the IRS or talk to each other? Our insurances are handled by different health care companies.

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The IRS will not directly fine your for this. But, FSAs through an employer must follow the IRS rules which state that an expense is only eligible to be paid through an FSA once. If you or your spouses plan discovers this they will make you pay back the money. Not technically illegal, but very unethical...

If a plan is paying for expenses that have already been paid for elsewhere the IRS could deem the whole plan as non-compliant and all expenses are rejected and immediately become taxable, for you and all other employees on the plan. This is really only likely if you are submitting duplicate expenses to the same plan (e.g., paying with FSA debit card and later also getting a reimbursement), and the plan fails to catch it. But, do you really want to be responsible for that if it does happen?

See this FSA store page for more info.

You or your spouse should contact the employer or FSA custodian and tell them it was a mistaken expense and needs to be corrected. Most likely they will just have you pay back the money.

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  • The IRS isn't made of lunatics. They're not going to shut down a FSA plan for one individual participant's honest, minor mistake.
    – ceejayoz
    Mar 19 '20 at 16:27
  • @ceejayoz note the "could", but you are correct, edited to clarify
    – Nosjack
    Mar 19 '20 at 16:29
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If you made the mistake this year, check the two FSA account websites for a form to correct a mistaken distribution.

Mistaken distributions can happen for a number of reasons. Sometimes you get a correction to the EOB, sometimes you get a refund from the provider, sometimes you get a rebate from the drug company.

If it was for a previous year, it is harder to correct, but it might not make a difference. If you used all the funds last year, and you were unable to submit more bills once you thought all the funds were gone; then keep the ones you weren't able to submit. This should cover you if the mistake is discovered.

You could also skip submitting some bills to make the adjustment unofficially. Just be able to document what you did. This works best when the mistaken bill was for a standard amount like a copay, or a prescription.

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