Providing documentation is one of the most common points of confusion and frustration for Flexible Spending Account (FSA) and Health Reimbursement Arrangement (HRA) participants. However, the solution is quite simple – all purchases must be substantiated.

What does the IRC say about FSA documentation?

IRC Section 125 Plan regulations state that all reimbursement account expenses must be substantiated. The substantiation may come in the form of a receipt or Explanation of Benefits (EOB) from a medical provider. The purpose of substantiation is to verify that the expense is an eligible expense under the employer’s Section 125 Plan, is an expense for an eligible plan participant, and prove that it was purchased during the participant’s plan year.

How are Benefits Debits Card purchases substantiated?

Some Third-Party Administrators provide FSA or HRA debit cards as a convenience to participants so that they do not have to pay for eligible expenses out of pocket and request reimbursement. When a participant pays out of pocket, it is reasonable they would need to provide a receipt to request reimbursement for the qualified expense. However, when a participant uses a debit card, the money is taken out of the reimbursement account automatically, so providing a receipt is not always top of mind. When a participant uses a Benefits Debit Card to purchase an eligible item, substantiation must still be provided. This is a common source of confusion, because participants may assume the expense is auto-substantiated.

Auto-substantiation is applied by some merchants to qualified Benefits Debit Card transactions. For example, merchants that have an inventory information approval system (IIAS) can verify if an expense is qualified or not at the time of purchase. Also, auto-substantiation is possible for verified co-pay amounts and recurring expenses that have already been substantiated. These expenses may not require additional documentation from the participant because the purchase has already meet substantiation requirements behind the scenes. However, participants are encouraged to keep documentation in case the auto-substantiation is not successful.

How does American Fidelity approach compliance?

Because the IRC states that all expenses must be substantiated, American Fidelity requires documentation for every FSA and HRA claim. It is our goal to help both our employers and their participants stay compliant with Section 125 Plan rules.

To make substantiation easier for our customers, we provide a mobile app for submitting documentation on the go, and encourage participants to “Snap, Submit, and Go!” immediately after a purchase. 

If you have questions about Section 125 Plan compliance or FSA documentation, contact our Section 125 Administration team.