How to Use Your FSA Card for Eligible Expenses

A Flexible Spending Account (FSA) allows individuals to set aside pre-tax money for eligible medical expenses. Contributions are deducted from an employee’s paycheck before federal, state, and payroll taxes, offering tax savings. An FSA debit card offers a convenient method to access these funds directly at the point of purchase.

Understanding Eligible Expenses

Determining what qualifies as an eligible expense is a first step before using an FSA card. The Internal Revenue Service (IRS) defines qualified medical expenses as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. Common eligible expenses include prescription medications, copayments for doctor visits, deductibles, and various medical equipment. Dental and vision care, such as eye exams, glasses, contact lenses, and orthodontia, are also covered.

The scope of eligible items has expanded. Over-the-counter (OTC) drugs and medicines no longer require a prescription. This includes common items like pain relievers, cold and flu medications, allergy medicines, and menstrual care products. However, items for general health or cosmetic purposes, such as vitamins for general well-being or cosmetic procedures, do not qualify. The exact list of eligible expenses can vary by FSA plan, so consult your plan administrator for a definitive list.

Making Payments with Your FSA Card

Using your FSA card for eligible purchases operates much like a standard debit card. At a physical location, you can swipe or insert the card at the point of sale, such as at pharmacies, doctor’s offices, or dental clinics. For online purchases, you simply enter the card details as you would with any other payment card.

Many merchants, including pharmacies, supermarkets, and discount stores, utilize an Inventory Information Approval System (IIAS). This technology automatically identifies eligible healthcare products at checkout, verifying the purchase aligns with IRS guidelines. If a merchant uses IIAS, the transaction is often automatically substantiated, meaning you may not need to submit additional documentation. However, if a merchant does not have an IIAS, or if the transaction includes both eligible and ineligible items, the system may not automatically verify the purchase, requiring manual substantiation.

There are several reasons an FSA card transaction might be declined. Common issues include insufficient funds, attempting to purchase an ineligible item, or using the card at a merchant that is not IIAS-compliant or does not accept FSA cards. The card may also be declined if it is inactive or if the plan year deadline has passed. If a card is declined, use an alternative payment method and seek reimbursement from the plan administrator, providing necessary documentation.

Substantiating Your Purchases

Substantiation is the process of proving an FSA card purchase was for an eligible medical expense, a requirement enforced by the IRS. Not all transactions are automatically approved without further documentation, particularly if the merchant does not have an IIAS or if the transaction is for a service rather than a product. Maintaining detailed records of all FSA purchases is important.

Required documentation includes an itemized receipt or an Explanation of Benefits (EOB) from your insurance provider. An itemized receipt should clearly display the patient’s name, the provider’s name or merchant, the date of service or purchase, a detailed description of the service or item, and the exact cost. For medical services, an EOB often provides details about the service received and the amount paid.

If an FSA card transaction does not auto-substantiate, or if you paid out-of-pocket and seek reimbursement, you will need to submit these supporting documents to your plan administrator. This manual substantiation process ensures compliance with IRS rules. Failing to properly substantiate purchases can have financial repercussions; any unsubstantiated reimbursements may be considered taxable income.