Why Is My FSA Card Being Declined When I Have Money?

When a Flexible Spending Account (FSA) debit card is declined, it can be a source of immediate frustration, especially when you believe sufficient funds are available in your account. These cards are designed to simplify payments for healthcare expenses, yet their usage is governed by specific regulations that can lead to unexpected declines. Understanding the various factors that influence FSA card transactions can help clarify why a purchase might not go through as expected.

Understanding Eligible Expenses

Flexible Spending Accounts (FSAs) are governed by Internal Revenue Service (IRS) rules, which define “qualified medical expenses.” Funds can only be used for these expenses, as outlined in IRS Publication 502 and Section 213(d) of the Internal Revenue Code. This includes costs for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any body structure or function.

Common eligible expenses include co-pays for doctor visits, prescription medications, dental work, and vision care like eyeglasses or contact lenses. Over-the-counter medications and items such as bandages or first-aid supplies are also covered. Conversely, cosmetic procedures, health club memberships, or general wellness items not medically necessary are not eligible. Always consult your FSA plan administrator’s detailed list of eligible expenses, as rules can vary within IRS guidelines.

Merchant and Transaction Specifics

FSA card declines often relate to the merchant and transaction type. Many merchants selling healthcare-eligible products must use an Inventory Information Approval System (IIAS). This system identifies eligible medical items at the point of sale. If a merchant lacks IIAS or their system fails to identify eligible items, the transaction may be declined, even if the item is technically eligible.

Merchant Category Codes (MCCs), four-digit numbers assigned to businesses by credit card networks, also play a role. Your FSA card is restricted to merchants with MCCs aligning with healthcare providers, such as doctors’ offices, dentists, or pharmacies. If a transaction occurs at a merchant whose MCC is not healthcare-related, the card may be declined. Other issues, like an inactive or expired card, or exceeding daily or per-transaction spending limits set by your FSA administrator, can also cause a decline.

Account Status and Fund Availability

Transaction declines can occur if perceived available funds don’t align with your FSA account’s actual status. Pending transactions, authorized but not fully processed, impact your real-time balance. Also, a previously approved transaction might require further documentation, known as substantiation. The IRS mandates all FSA claims be substantiated by independent third-party documentation, such as an itemized receipt or an Explanation of Benefits (EOB).

Failure to provide required substantiation by a deadline can result in a temporary account hold or future declines. In some cases, if unsubstantiated amounts are not resolved, the FSA administrator may require repayment. Account status can also be affected by employment termination, which might limit access to funds if not covered by a grace period or COBRA, or by the end of a plan year.

Steps to Resolve a Declined Transaction

If your FSA card is declined, first review your FSA plan’s eligible expense list to confirm the purchase was for a qualified medical expense. Access your FSA administrator’s online portal or mobile app to check your current account balance and transaction history. This helps identify pending transactions or outstanding documentation requests.

For a specific decline explanation, contact your FSA administrator directly. Their customer service can provide insights into the exact reason for the card’s rejection. Always retain itemized receipts for all FSA purchases, as documentation may be required later for substantiation. If the expense is eligible and the card still declines, consider paying out-of-pocket and submitting a claim for reimbursement, providing all necessary documentation.