USA FSA Accounting at Year-end


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How does one reconcile and account for FSA liabilities at the end of a fiscal year? I currently have a liability account where payroll deductions go in and claims are taken out. When we established the account I created a receivable account for the IRS required upfront company funding. What triggers the relief of that receivable? Employees have 3 grace months in the following calendar year to file claims and that is beyond the year-end close. How do I show the liability account at year-end if I don't know if anybody is under spent? What happens to the unspent money in terms of a journal entry? Thank you for your input.
 
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bklynboy

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The way we account for it is to estimate based on past experience how much was incurred but not yet reported and hold that amount as a liability and release the rest to the P&L. At the end of the grace period we release the remainder to the P&L if its not used. This is no different than how we account for workmans comp or other situations where you need to estimate your liability at YE.
 

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