For a plan that allows reimbursement of orthodontia (e.g. Medical FSA), IRS regulations allow reimbursement based on date of payment, date of service or the payment due date on statements/coupons.
IRS regulations allow a Medical Flexible Spending Account (FSA) participant to be reimbursed for pre-paid orthodontia services, up to a participant’s annual election amount, before services are provided. The payment must have been made during a plan year in which you are participating in a Medical FSA and must claimed against that year’s Medical FSA election. The date of service is deemed to be the date of payment which is an exception to the standard IRS rule for Medical FSAs, which holds that reimbursement is based on the date of service rather than the date of payment.
1. Payment in Full
Submit documentation from the orthodontist showing the name of the person receiving the treatment, the beginning date of the treatment, the contracted amount, and the amount you paid. Credit card slips, bank statements, or cancelled checks are not valid documentation under IRS rules.
2. Payment Plan Options
For your first claim, submit documentation from the orthodontist showing the name of the person receiving the treatment, the beginning date and ending date of the treatment, total contracted amount, scheduled monthly payment amount and any amounts you have paid. (NOTE: if your payments are financed through a third party, then the payment contact must be included with the first claim submission.) For each claim thereafter, submit documentation from the orthodontist, such as a statement or ledger, which indicates person receiving the treatment as well as the service, amounts charged and date(s) of service.
Below are some examples to illustrate how the Medical FSA works with your orthodontia expenses.
Example 1: Payment in Full – Payment is made in full on the first visit
You participate in a Medical FSA and elect $2,400 for the 2017 plan year. In March 2017 you sign an agreement with an orthodontist for braces for your son starting in April 2017. Treatment is estimated to be 20 months in duration. For these services, the orthodontist will charge $2,200. If you pay for the services on the first visit, you are permitted to be reimbursed the full $2,200 as a 2017 expense, or up to your remaining balance for your 2017 election.
Even though all services are not yet provided, the service is deemed to be “incurred” on day of payment (April 2017). Using the payment in full option, the date of service is deemed to be the date of payment.
Example 2: Payment Plan
You participate in a Medical FSA in 2017 and 2018 and elect $2,400. In February 2017 you sign an agreement with an orthodontist to fit braces onto your daughter’s teeth in March 2017, and treatment is estimated to be 18 months in duration. For these services, the orthodontist will charge $2,000, payable with a $500 dollar down payment and $100 monthly installments. You would be able to claim $1500 in 2017 (the $500 down payment plus $100 per month from March 2017 – December 2017), and $500 in 2018 ($100 per month from January 2018 – May 2018), or up to your remaining balance for each plan year.
As in the prior example, the service is deemed to be “incurred” on days of payment so each payment is reimbursable.