When Do I Need to Substantiate My FSA?

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Sometimes you will need to substantiate your FSA. What are the steps to go through with this process? Learn more substantiating your FSA purchases.

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Substantiation? Eligible expenses? FSA card declined and unsure why? While FSAs 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 expert.

What is substantiation and why is it required?

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

Follow the Rule of 5 for Substantiation

When submitting documents and receipts for substantiation, be sure to follow the Rule of Five. If your documents 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

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 provider. Pay as you would with your FSA 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 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-eligible. However, not all products at these stores are FSA-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-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 debit card declining?

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

Your FSA 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-free benefits of an FSA.

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 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-eligible items with your debit card.

Get familiar with eligible expenses

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

Interested in learning more about FSAs? Read about common FSA-eligible items or different types of FSAs on the Lively blog.

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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