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I want to switch from doctor 1 to doctor 2 for a dental procedure. I have paid doctor 1 around $3500 from FSA over two years since this procedure is costly and long, so I've been making advanced payments; also, FSA money expires at the end of the year, so I had to get it out of the FSA for this procedure.

I am now thinking of switching to doctor 2. Can I just get a check from doctor 1 to pay doctor 2? Or is there going to be problem refunding this money?

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    You've been paying in advance for 2 years but haven't had any work done yet? – BobbyScon Mar 20 '18 at 15:22
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Can I just get a check from doctor 1 to pay doctor 2?

You are probably legally entitled to repayment of any advanced and unearned payments you've made to dentist 1. i.e. The payments you've made for services yet to be rendered.

Or is there going to be problem refunding this money?

I'd imagine dentist 1 won't be terribly happy that you want to switch providers in the middle of long term treatment and will likely make this process difficult. I suspect yes, there will be a problem.

Separately, since these are FSA funds and you're spanning tax years there's likely a tax issue in play. Assuming you can talk the dentist in to a refund, and they refund your FSA rather than giving you a check, your course of action depends on how your employer arranged the FSA. The employer can either allow a rollover of unused funds or an extended grace period to submit claims for the prior year. If they refund the FSA, that goes back to your employer and you either:

  • Rollover Up to $500 of unused FSA funds can be rolled over from one tax year to the next. You'd be able to make a 2018 claim against these funds for dentist 2.

  • Extended Grace Period, You have until March 15 of the following year to incur qualified expenses (you can use 2017 FSA funds for services up until March 15, 2018) and then you have until March 31 to submit a claim. But March 15 has passed and dentist 2 likely hasn't given you an invoice with a date of service on it yet so these funds would be forfeited; unless you have other qualified expenses that you haven't claimed against yet.

Ideally, you'd convince dentist 1 to give you a check, I don't know what, if any, tax impact there would be to receiving this check. I'd suspect the IRS would want to treat this as income since it would otherwise have been forfeited and wasn't used for qualified expenses (you can't use 2016 FSA funds for a 2018 date of service).

  • Maybe it varies by the plan, but on the FSA my employer provides, the "grace period" allows processing reinbursements through March, but the money had to have been spent during the plan calendar year. The extra two and a half months is just to allow time for paperwork processing. – Ben Voigt Mar 22 '18 at 6:16
  • @BenVoigt, that's not the grace period. A couple of years ago FSA rules changed to allow either a $500 rollover sometimes called a carryover, or a grace period that effectively extends the plan year allowing more time to actually incur expenses in to the next plan year up to March 15. Your plan might not have included either of these enhancements. Here's a little blurb from wageworks, an FSA administrator wageworks.com/employees/support-center/support-and-faq/… – quid Mar 22 '18 at 7:04
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There isn't a simple answer to your question. From a procedural standpoint, if your dental rehabilitation has several components which were to be completed in stages then valuation of services received is easier to determine. For example, the sequence might include some of the following:

(1) Extractions

(2) Root canals

(3) Periodontal surgery

(4) Orthodontics

(5) Prosthodontics (implants, posts, crowns, bridges, etc.)

So if one had all of the extractions and was waiting to start the next stage, valuation for services received would be easier. However, if multiple stages are being performed simultaneously, it becomes more difficult to valuate and it becomes a question of how the doctor values his time as well as what costs have been incurred (lab fees). And then there's the question of how reasonable the doctor will be about this and that's often a problem.

The best case scenario is that you have a written proposal indicating all work to be done and it includes a break down of all components. Barring that, there may be a problem refunding over payment. Or there might not.

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