Q&A: Can Family Members Use FSA Funds to Pay Each Other's Medical Expenses?

Question:

We have two employees (a mother and daughter) who both work for our company. The daughter is 20 years old and enrolled as a dependent on her mother’s medical insurance. However, both employees have enrolled separately in our healthcare FSA and contribute to their accounts separately.

I understand that parents can pay for their adult children’s unreimbursed medical expenses from their FSA. However, I’m not sure how the rules apply to this situation. Can the mother use her FSA funds to pay her daughter’s medical expenses? Can the daughter use her FSA funds to pay her mother’s medical expenses? Or are they both prohibited from paying the other’s expenses?

Answer:

Interesting question! Provided that neither employee contributes to a Health Savings Account (HSA), the mother may use her FSA for the daughter’s medical expenses. However, the daughter may use her FSA to pay for her mother’s medical expenses only if the mother is the daughter’s tax dependent, which is generally unlikely.

Both employees should ensure that:

1. They do not submit duplicate claims for the same expense(s).
2. They fully understand the FSA plan’s “use-it-or-lose-it” provision, which requires employees to spend all contributions by the end of the plan year or the remaining funds will be forfeited.

If the mother intends to pay a significant portion of the daughter’s anticipated expenses, it may be prudent for the daughter to limit her own FSA contributions accordingly.

Finally, you might want to advise these employees to keep the following principles in mind:

1. Parents may pay a child’s medical expenses from an FSA until the child reaches the age of 26.
2. All expenses submitted for FSA reimbursement must meet the IRS definition of qualified medical expenses.
3. Neither employee should contribute to an FSA in the same year that either of them contributes to an HSA. The only exception would be for Limited Purpose FSAs, which can only be used for unreimbursed dental and vision expenses.

Not a client of The Miller Group? Connect with one of our employee benefits advisors to learn how our compliance team can help you stay on track and confidently meet your obligations.