FSA Debit Card Substantiation Rules
August 26, 2021
In IRS Information Letter 2021-13, the agency recently reiterated the requirement that Flexible Spending Account (FSA) claims paid with a debit card include the required substantiation, containing all of the information normally required for a claim submitted for reimbursement through means such as an online portal or mobile app.
Under IRS FSA substantiation rules, a credit or debit card receipt is not sufficient. Expenses must be substantiated with the following information:
- name of the individual receiving the eligible service or purchasing the eligible item;
- date(s) the service was provided, or item was purchased (start and end dates if applicable);
- description of the service provided, or product purchased (e.g., prescription, copay, office visit, glasses, daycare);
- name of the service provider or merchant where the item was purchased; and
- claim amount (dollar amount spent for the service or item).
Auto-substantiation
The only exception to these rules is for expenses from certain providers (e.g., pharmacies) that can be auto-substantiated by the Merchant Category Code (MCC) of the provider’s debit card machine and when the item or service is identified by an Inventory Information Approval System (IIAS). Automatic substantiation is allowed at merchants that have an IIAS in place to ensure that cards are used only for eligible health-related expenses.
If the information from the card transaction does not satisfy the substantiation requirements—e.g., the item or service was not specified—then Chard Snyder must request additional information from the plan participant and must deactivate the card if the expense is not timely substantiated.
Manual substantiation
If the Chard Snyder benefit card cannot automatically verify that the expense meets IRS guidelines, Chard Snyder will ask participants to submit copies of their itemized receipts and/or other documentation including the information detailed above. Explanation of Benefits (EOB) statements also contain the necessary information to substantiate purchases made using a debit card. Handwritten notes, credit card transaction receipts or previous balance receipts cannot be used to verify transactions.
Making substantiation easier
The Chard Snyder Benefit Card is a special-purpose debit card that gives plan participants an easy, automatic way to pay for eligible health-related expenses. The card has a 93% auto-substantiation rate, greatly reducing the need for additional documentation to prove a purchase was an eligible expense.
When substantiation is requested, the Chard Snyder mobile app makes submitting receipts and documentation faster and easier than ever. Receipts can also be submitted online through the participant portal on the Chard Snyder website.
FSA participants can learn how to use the Chard Snyder mobile app or online portal to substantiate their expenses by watching this brief video. https://www.chard-snyder.com/support-center/videos/chard-snyder-substantiating-your-expenses-in-the-consumer-portal-or-mobile-
Please note: As a third-party administrator, Chard Snyder follows all guidelines regarding the use of personal health information (PHI) as directed by HIPAA, along with rules and guidance within IRS Code Section 125 and Publication 969. While the IRS updates Publications annually and they are all technically ‘current’, no Publication supersedes another, and they are meant to be a non-technical explanation of the rules. Therefore, they should be treated as supplements to the laws, regulations, and other sources of guidance like IRS notices or DOL FAQs, in terms of authority.