Can I Withdraw Money From My FSA at an ATM?

A Flexible Spending Account (FSA) offers a way to pay for healthcare costs with pre-tax dollars. Many people wonder if they can access these funds as cash, perhaps through an ATM, similar to a regular bank account. Direct cash withdrawals from an FSA at an ATM are not permitted. An FSA is different from a personal checking or savings account, as it is a tax-advantaged benefit specifically designed for qualified medical expenses.

Understanding FSA Restrictions

The inability to withdraw cash from an FSA stems from regulations set by the Internal Revenue Service (IRS). FSAs operate under IRS rules, which classify them as tax-exempt benefits intended solely for eligible healthcare expenditures. These accounts are not structured like bank accounts. They function as a mechanism to reimburse individuals for out-of-pocket medical costs.

The funds contributed to an FSA are pre-tax, meaning they are deducted from your paycheck before taxes are applied, leading to tax savings. This tax-favored status comes with guidelines on how the money can be used. Any use of FSA funds must relate to a qualified medical expense. These regulations ensure the integrity of the tax benefit and prevent the accounts from being used as general income sources.

Approved Methods for Accessing Your FSA Funds

While cash withdrawals are not allowed, there are two primary methods for accessing your FSA funds for qualified medical expenses. Many FSA plans provide a dedicated FSA debit card, which functions much like a regular debit card but is linked directly to your FSA. You can use this card at the point of sale at healthcare providers, pharmacies, and stores that accept health benefit cards for direct payment of eligible items and services. This card is for qualified medical purchases and cannot be used for cash back or ATM withdrawals.

The second common method is the reimbursement process. With this approach, you pay for your qualified medical expenses out-of-pocket using your personal funds. Afterwards, you submit a claim to your FSA administrator for reimbursement. This claim requires documentation, such as an itemized receipt or an Explanation of Benefits (EOB) from your insurance provider. The documentation must show:

• The patient’s name
• The provider’s name
• The date of service
• A detailed description of the service or item
• The amount paid

Once the claim is approved, the funds are deposited directly into your bank account within a few business days.

Identifying Qualified Medical Expenses

Understanding what constitutes a qualified medical expense is important for proper FSA use. The IRS defines these as amounts paid for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.” Common eligible expenses include doctor and hospital visits, prescription medications, dental care, and vision care, such as eye exams and eyeglasses. Co-payments and deductibles for medical services are also covered.

Following changes introduced by the CARES Act in 2020, many over-the-counter (OTC) medications and products, like pain relievers, cold and flu remedies, and menstrual care products, are now eligible without requiring a prescription. Some items, such as vitamins or weight-loss programs, may still require a Letter of Medical Necessity from a healthcare professional to be eligible. Confirm eligibility with your FSA administrator or refer to IRS Publication 502 for guidelines.

Avoiding Improper Use

Using FSA funds for non-qualified expenses or attempting unauthorized cash withdrawals carries financial consequences. If funds are used improperly, the IRS may consider those amounts as taxable income. This means the tax benefits initially gained are negated, and the misused funds become subject to income tax. Additional penalties may also apply.

Maintain records of all FSA transactions, including itemized receipts and EOBs. The IRS requires documentation to substantiate that all purchases were for eligible expenses. Your FSA administrator or the IRS may request this documentation for verification, and failure to provide it can result in denied claims or the requirement to repay the funds. Adhering to these guidelines ensures compliance and helps you maximize the benefits of your Flexible Spending Account.