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Posted on: April 22, 2021

Do Your FSA Purchases Pass IRS Muster?

Diversified Benefit Services debit card

The IRS requires every flexible spending accounts (FSA) dollar be spent on eligible items and be verifiable, if necessary. Can you justify your FSA purchases if the IRS asks? This verification process is called "substantiation” and simply means you should be able to prove that every FSA penny used was for an eligible expense.

When do I need to substantiate my FSA?
Substantiation is only requested for certain flexible spending account charges. When you use the FSA debit card, Diversified Benefit Services (DBS) only receives limited info – date, merchant name and the amount spent. To comply with IRS regulations, DBS needs to verify certain debit card charges to learn WHAT was purchased (i.e. non-cosmetic dental work, eyeglasses/contact lenses, prescriptions, OTCs, etc.).

How do I substantiate my FSA purchase?
If substantiation (proof) is requested, you’ll receive a letter from DBS. Be prepared to submit an explanation of benefits (EOB) from our insurance carrier (WebTPA) or an itemized receipt from a retailer or pharmacy. Credit card swiped receipts are not acceptable.

Send DBS the itemized receipts showing date of service or purchase, name of medical provider or retail store/pharmacy, service received or item purchased and the amount. Use one of four methods:

  1. Upload documentation via Diversified Benefit Services’ mobile app
    • Log in           
    • Click “Debit Card Substantiation Bar”
    • Take Photo of EOB or itemized receipt
    • Click “Got It”
      DBS screens WEB
  2. Upload documentation online
    • Login to the DBS website 
    • Select “Claims” 
    • Click the “Debit Card Substantiation Submit” icon 
    • Select “Submit” and upload the photo or pdf of the EOB or itemized receipt
  3. Send documentation via fax – 262-367-5938
  4. Send documentation via U.S. mail
    Diversified Benefit Services, Inc.
    P.O. Box 260
    Hartland, WI  53029 

How do I lessen the challenges of substantiation?
Make the verification process less of a headache by following these guidelines:

Medical/pharmacy transactions. The FSA platform should NOT request substantiation for medical merchant codes (such as hospitals, clinics, doctor offices, etc.) – the option is turned off. However, you should still retain receipts for IRS audit purposes. Also, transactions at pharmacies (i.e. prescriptions) should NOT require supporting documentation, but hang onto these receipts in case they are requested later.  

Dental and vision will need substantiation. These providers are often flagged as needing additional information because they offer eligible expenses and ineligible FSA items as well (like cosmetic reconstruction or teeth whitening). Most of the services/items from these providers are covered, but still need to be authenticated.  

As a best practice, request a detailed receipt outlining the services and procedures performed. When the EOB arrives, it clarifies for DBS the vision and dental services rendered. Keep a copy for your records or take a picture of the receipt immediately and upload to DBS via the mobile app.

Separate purchase receipts. Some items won’t require substantiation because of where you bought them. But, it’s much easier if you have them on a separate receipt. If FSA charges are for over-the-counter medicine, you’ll be required to provide a doctor’s prescription for reimbursement under pre-tax FSA rules. 

Letters of Substantiation.  In the past, letters were sent requesting “substantiation or cards would be turned off.” Now, cards will NOT be turn off immediately. However, your FSA debit card will be deactivated if, after 90 days of the transaction in question, no support documents are submitted. Once proof of the claim is received, your card will be reactivated. 

DBS allows the City of Plano to modify the language of these letters, plus we have the ability to email requests to members. NOTE: Initial notification is sent the day after transactions merely as a reminder not to forget to request receipts.

Final rollover funds from United Healthcare are being settled and coming soon. Human Resources will provide notification once the amounts are available.

As always, your Human Resources Benefits Team is here to provide support if you have questions or issues. If you need assistance, email or call 972-941-7115.

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