Per IRS Notice 2006-69: “Card transactions using this method are fully substantiated without the need for submission of a receipt by the employee or further review”. ![]() The IIAS system already pre-classifies every product sold in the store as to whether it’s a qualified medical expense or not in accordance with IRS rules.Employees may use FSA debit cards at retailers utilizing the Inventory Information Approval System (IIAS) without providing further receipts.The employee’s share of the cost of the expense.Information describing the service or product,.Note: Bolded substantiation options below that rely on third party verification don’t require a receipt.Self-substantiation is never permitted (i.e., an employee cannot simply attest to the validity of the expense…third party proof is required).All expenses must be substantiated by a third party.It appears they did and thought it was high time to provide a refresher and address impermissible shortcuts head-on.īelow is a short summary of substantiation requirements and the impermissible shortcuts addressed in the memorandum. That was 17 years ago, which provided lots of time for people to try “creative” shortcuts to some of those rules likely hoping the IRS wouldn’t notice. ![]() It’s therefore necessary to go back to IRS Notice 2006-69 to understand the details of debit card rules and dependent care substantiation. However, that letter was very brief and didn’t address dependent care expenses. The IRS warns failure to abide by these rules disqualifies the entire plan, making all reimbursements from the FSA plan taxable for everyone.Ī chief counsel letter provided back in 2021 gave a quick synopsis of the requirement for health FSAs to substantiate all medical claims except for certain debit card transactions meeting very specific rules for real-time substantiation or automatic substantiation (which we discuss below). While this memorandum does not contain any new information, it serves as a useful reminder of the rules, particularly for employees who dislike having to provide receipts. ![]() On April 28, 2023, the IRS’s Office of Chief Counsel published a memorandum recounting the existing claim substantiation requirements for medical and dependent care expense payments from flexible spending accounts (FSAs).
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