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Substantiating Your FSA or HRA Purchases for the IRS

Lively · February 17, 2023 · 5 min read


Substantiation? Eligible expenses? FSA or HRA card declined and unsure why? While FSAs and HRAs are great for helping you save money, there are rules that may be a little confusing. With the right information, you can navigate through these rules easily. Here are a few tips to help you become an FSA or HRA expert.

What is substantiation and why is it required?

The IRS requires that every dollar spent from an FSA or HRA be eligible and verified. This verification process is "substantiation". This means that you need to prove that everything paid from your FSA or HRA is an eligible expense.

Think of it like this: the IRS lets you use tax-free funds to pay for medical expenses. In exchange, they want proof that you are using those funds for the expenses they deem eligible.

Did your FSA or HRA provider request substantiation for a transaction? It's because the merchant that you purchased from was unable to substantiate the expense on their own. When this happens, your FSA or HRA provider will want documentation to ensure that your expense is eligible.

Follow the Rule of 5

When submitting documents and receipts for substantiation, be sure to follow the Rule of Five. If your documents, such as an itemized receipt or explanation of benefits (EOB), cover these five elements, approving your payments will be simple.

  1. Patient or dependent name

  2. Provider or merchant name

  3. Date of service

  4. Type of service or product

  5. Expense amount

For dependent care, the document must come from a third party and may not be a cancelled check.

What is auto-substantiation?

When paying with your debit card, certain merchants have systems setup to identify eligible expenses. This helps providers authorize eligible expenses without any additional documentation. This process is "auto-substantiation".

When an expense is auto-substantiated, you won't need to share any receipts with your FSA or HRA provider. Pay as you would with your FSA or HRA debit card and you're all set.

Auto-substantiation is most commonly seen at large, national retailers and pharmacies. Big stores like Target, Costco, Walgreens, CVS, Amazon and the FSA Store are a few examples of retailers who are currently set up to auto-substantiate your FSA or HRA purchases.

Why are some debit card purchases authorized, but I still need to submit a receipt?

The intent for your debit card is that it works at merchants and providers where most of the services and products are FSA or HRA-eligible. However, not all products at these stores are FSA or HRA-eligible. For example, you could be picking up some over-the-counter medication at a pharmacy, but grab a snack on the way out. Your medication is FSA or HRA-eligible - your snack is not.

When you pay for items at these stores, the transaction goes through with the assumption that you purchased qualified expenses.

Algorithms review the purchase to determine if it was an eligible expense. Sometimes, there isn't enough information from the merchant to auto-substantiate your purchase. This is when your provider would alert you that they need more information. There are many different types of merchants where you can use your FSA. Depending on the inventory of FSA eligible items, some of these stores will require additional documentation.

Why is my FSA or HRA debit card declining?

If you try to use your FSA or HRA debit card to purchase eligible items and it declines, there are a few reasons why this can happen.

Your FSA or HRA debit card only works at certain providers and merchants. If you're worried about using your card at a merchant, you can look up to see if there are any qualified merchants in your area.

It is possible that your card declines when making a qualified purchase. When this happens, you can still pay for that qualified expense out-of-pocket. You can then submit the claim for reimbursement later and still receive the tax-advantaged benefits of an FSA or HRA.

In addition, make sure to run your card as a credit card, not a debit card, and skip entering the pin if asked for one. Remember, you cannot choose "cash back" when making a purchase with your FSA or HRA card.

Wondering why your card declined? Here are three common reasons this can happen:

  1. You have not activated your card or the FSA provider suspended your card. (Expired, fraud prevention, etc.)

  2. Your FSA or HRA has no funds remaining for this plan year, or it has insufficient funds.

  3. You are attempting to purchase a mix of ineligible and eligible items with your card. Split your order and pay for only the FSA or HRA-eligible items with your debit card.

  4. Bag or bottle deposit fees are added to the purchase - these are not FSA or HRA-eligible.

Get familiar with eligible expenses

Lively makes it easy with our convenient "What's Eligible" tool. You can easily search by HRA or the type of FSA you have and see what's qualified.

Interested in learning more? Consult our FSA Guide and HRA Guide.



Lively is the modern HSA experience built for—and by—those seeking stability in the ever-shifting healthcare landscape. By harnessing modern innovation and deep industry expertise, Lively is committed to bridging today’s savings with tomorrow’s unknowns. Unlike traditional institutions hindered by bureaucracy, Lively’s commitment extends beyond initial set up to providing dedicated, ongoing support and education for every step. So each HSA can reach its maximum potential with minimal headache.

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Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.



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