Why You Need to Keep Receipts for Your Benefits Accounts

If you’ve ever been asked to submit documentation for expenses on your flexible spending account (FSA), health reimbursement account (HRA) or dependent care account (DCA), you may have wondered, “Why do I need to provide a receipt when it’s my money in the first place? And why do they ask some times but not others?”

Some very good reasons are behind this.

First, these accounts are sponsored by your employer. As such, they’re treated similarly to your employer-sponsored health insurance plans. And because they hold tax advantages for both you and for your employer, the Internal Revenue Service (IRS) requires your employer to “substantiate”—a fancy word for document and validate—the eligibility of each expense.

Sometimes, the expenses are auto-substantiated. If your purchase was from a pharmacy or store that is a member of the “IIAS” network or meets the IRS’ 90 percent rule (where 90 percent of their gross sales meet eligibility requirements), it’s automatically considered an eligible expense.

Your employer may subscribe to a service that auto-substantiates certain expenses via data available from insurance carriers. They can also choose to automatically approve expenses for copay amounts like $10, $20 or $50.

So if you receive a request for documentation for your FSA, HRA or DCA, that’s because your employer has no other way to substantiate the eligibility of the expense. You’re not alone: At Pinnacle Health & Benefits, about half of the total number of expenses to FSAs, HRAs and DCAs require this extra step.

What information does the IRS require on a receipt? The key pieces of information are:

• Patient or dependent’s name
• Provider’s name (doctor name, hospital, pharmacy, daycare, etc.)
• Date of service
• Description of service or item purchased
• The amount (your out-of-pocket cost)

Health insurance carrier Explanations of Benefits (EOBs) are excellent receipts because they carry all this information. You can download these from your insurance carrier’s website. Most walk-out statements from office visits also contain the required information.

What happens if I cannot provide a receipt?

Generally, your employer or benefits company allows a specific amount of time–often 60 days–for you to submit your required documentation. If you miss the deadline, or the claim is denied, your employer must follow the IRS’ rules. They may put a temporary hold on your debit card or request repayment until you can locate and produce appropriate documentation. Or your employer may report unsubstantiated amounts as taxable income on your form W-2.

Why don’t I have to provide receipts for my Health Savings Account (HSA)?

HSAs are tax-advantaged, but the burden of proof for HSAs does not lie with the employer. The IRS holds the account owner responsible for documenting the eligibility of expenses for HSAs. So while no one will ask you for receipts day-to-day, you should keep them all in case the IRS asks to see them. This is also why an HSA stays with you even when you change jobs and why you retain all the funds from year to year through retirement, unlike FSAs, HRAs and DCAs, which must be spent by the end of the plan year or grace period.