Receipt Request – your Tax Audit friend

Throughout the 1920s, Al Capone ran a multi-million dollar bootlegging business, managed a successful prostitution and gambling ring, and organized the St. Valentine’s Day Massacre. It wasn’t until 1931 the notorious gangster was brought to justice.

…for tax evasion.

A criminal who made a career of avoiding law enforcement couldn’t avoid the IRS. If Al Capone had to adhere to IRS audits, so does everyone else. Flexible Spending Account (FSA) audits included.

Not the smoothest transition but gets the job done.

An FSA is a pre-tax benefit that happens to pay for medical expenses but is not related to a medical benefit plan. Most FSA administrators, PS Administrators included, offer FSA debit cards for easy use. Insurance companies do not relay treatment or service details back to FSA administrators;  they are completely unrelated accounts. (Remember an FSA is pre-tax benefit and not a medical benefit.)

When the participant uses their debit card, their FSA administrator may send a “Receipt Request” for more detailed information about their debit card use. The FSA participant is then responsible for sending their administrator an invoice/itemized receipt from that service. With invoices and receipts on file, the administrator can ensure the participant’s debit card use is in compliance with the IRS guidelines.

Keeping all parties in good graces with the IRS.

Listed below are common (accidental) misuses of the FSA  debit card that receipt requests have caught:

  • Vitamins recommended by a chiropractor or acupuncturist
    • Although chiropractic and acupuncture services are eligible expenses, vitamins prescribed by these providers are not. However, vitamins are eligible with a note/prescription from your primary care provider stating they are a medical necessity.
  • Using plan funds for last year services
    • This typically happens at the beginning of a new plan year. The IRS allows FSA funds for services within a designated plan year. If a plan year is January 2017 – December 2017, a participant cannot use those funds to pay for a December 2016 service.
  • Electronic  toothbrushes
    • Regardless if your dentist recommends one, FSA money cannot be used to purchase any type of toothbrush.
  • Over the counter medication
    • The IRS changed this rule in recent years, so now a participant cannot use their FSA funds for these items unless prescribed by their primary care provider.
  • Teeth Whitening
    • This is considered a cosmetic expense and the IRS only allows pre-tax funds to go towards dental and medical necessities. Unfortunately, dazzling white teeth is not considered a necessity.

Once these misuses are caught, the plan administrator can help the participant correct the issue. Granted no one is going to go to Alcatraz for purchasing a toothbrush with their FSA funds, but at least it’s one less thing to worry about during an IRS audit.

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