How Long to Keep FSA Receipts and Why It Matters

Keeping receipts for a Flexible Spending Account (FSA) may seem like a hassle, but it ensures that expenses comply with IRS regulations. Failing to retain documentation could lead to denied claims or tax issues if verification is required. Understanding recordkeeping guidelines helps avoid complications and ensures preparedness for any questions about reimbursements.

Standard Recordkeeping Period

The IRS does not specify an exact timeframe for retaining FSA receipts, but general tax guidelines offer a benchmark. Since FSAs are tax-advantaged, documentation should align with IRS recommendations. Taxpayers should keep receipts for at least three years from the date they file their tax return for the year in which the expense occurred. This corresponds with the IRS’s standard audit window.

State laws and individual plan policies may require longer retention. Some states have extended statutes of limitations for tax audits, and certain FSA administrators impose longer retention requirements, particularly if claims are subject to review. Checking with your plan provider ensures compliance with specific policies.

Employer or Plan Sponsor Requirements

Employers and FSA plan sponsors set documentation requirements for reimbursement. While the IRS provides broad guidelines, individual employers may impose additional rules to ensure expenses meet eligibility criteria. Some require itemized receipts for every claim, while others allow automatic substantiation for purchases made with an FSA debit card at approved merchants.

Many plans use automated systems that verify transactions at the point of sale, reducing paperwork. However, if a purchase cannot be automatically verified—such as when a provider does not use an inventory information approval system (IIAS)—employees may need to submit receipts manually. If documentation is missing or insufficient, the plan sponsor may request repayment or suspend account access until the issue is resolved.

Employers must also ensure FSA plans comply with IRS regulations to maintain tax-advantaged status. Failure to enforce proper documentation could result in non-compliance, leading to tax penalties. Plan sponsors often conduct periodic audits of claims and may set retention policies beyond IRS recommendations.

Possible Audit or Verification Requests

FSA reimbursements can be reviewed at any time, and documentation requests may arise beyond routine employer oversight. The IRS may examine whether expenses were properly substantiated, particularly if an individual is audited for other tax matters. While FSAs are not directly reported on tax returns, discrepancies in medical deductions or employer filings could prompt further scrutiny. If audited, taxpayers may need to provide receipts to confirm that reimbursed expenses met IRS eligibility requirements.

FSA administrators also conduct compliance checks to ensure funds are used appropriately. Transactions may be flagged for unusual spending patterns, purchases from non-healthcare merchants, or excessive amounts. If a previously approved claim is later reviewed, the account holder may need to submit documentation even after reimbursement. Failure to provide proof may result in repayment obligations or tax consequences.

Employers must also comply with IRS nondiscrimination testing rules to ensure highly compensated employees do not disproportionately benefit from tax-advantaged accounts. If an employer fails these tests, it could trigger a broader review of FSA claims, leading to additional verification requests.

When Receipts Are No Longer Needed

Receipts for FSA expenses serve as proof of eligible reimbursements, but they are not needed indefinitely. The key factor in discarding them is the expiration of any legal or financial risk associated with the transaction. Since FSA contributions are pre-tax, recordkeeping obligations generally end when the possibility of tax adjustments or disputes has passed. This aligns with the statute of limitations for amending a tax return—three years from the original filing deadline. After this period, the IRS cannot reassess deductions or challenge expenses unless fraud is suspected.

Plan-specific deadlines also dictate retention needs. FSAs have a “run-out period,” typically 90 days after year-end, during which participants can submit claims for the prior plan year. Once this window closes, receipts for unsubmitted expenses are no longer needed. If an FSA includes a carryover provision or grace period, documentation should be kept until these extensions expire, as reimbursements could still be reviewed.