Employee Benefit News for School, City and County Employers

FSA Claims Substantiation Requirement

Written by Adam Kuck | May 9, 2023 11:46:01 AM

1 minute read

The IRS released a Chief Counsel Advice Memorandum regarding important reminders about claims substantiation requirements for flexible spending accounts (FSAs). The requirements apply to both health and dependent care FSAs.

 

Compliance Reminders

FSAs are not considered properly substantiated if employees self-certify expenses, if the plan uses sampling, if only amounts over a certain level are substantiated, or if charges from favored providers are not substantiated. Also, dependent care expenses must be incurred before they are eligible for reimbursement.

 

Tax Consequences

FSA reimbursements that aren’t fully substantiated must be included in the employee’s gross income. Also, if a Section 125 cafeteria plan doesn’t comply with these requirements, the plan will no longer qualify for favorable tax benefits. To avoid tax consequences, employers with FSAs may want to review their substantiation procedures to make sure they are complying with IRS rules. Download the bulletin for more details.