Identifying FSA Eligible Expenses And Items

Quick answer

• FSA, or Flexible Spending Account, funds can cover a wide range of medical, dental, and vision expenses.
• Generally, expenses must be “medically necessary” to treat a diagnosed condition or symptom.
• Preventive care, such as routine check-ups, is often eligible.
• Over-the-counter (OTC) medications and supplies are frequently eligible, but check your plan.
• Expenses for dependents are eligible if they are also eligible for your health insurance.
• Always keep detailed receipts and documentation for any FSA claims.

Who this is for

• Individuals who have a Flexible Spending Account (FSA) through their employer.
• People who want to maximize their FSA benefits and avoid losing funds due to ineligible expenses.
• Anyone seeking to understand the broad categories of items and services that can be reimbursed by an FSA.

What to check first (before you act)

Your FSA Plan Documents

Your employer’s FSA plan is the definitive source for what is and isn’t eligible. These documents outline specific covered expenses, any limitations, and reimbursement procedures. Look for a Summary Plan Description (SPD) or similar document provided by your HR department or benefits administrator.

Your Specific Health Needs

The IRS defines eligible expenses as those primarily for medical care. This usually means they are necessary to alleviate or prevent a physical or mental illness or condition. Cosmetic procedures are typically not eligible unless medically necessary for reconstructive purposes after an accident or surgery.

Timing of Expenses

FSAs operate on a plan year, and funds generally must be used within that year. Some plans offer a grace period or a limited carryover amount, but this varies. Ensure your expenses occur within your FSA’s plan year.

Identifying FSA Eligible Expenses and Items

Step-by-step (simple workflow)

1. Review Your FSA Plan Summary:

• What to do: Obtain and read your FSA’s Summary Plan Description (SPD) or benefits guide. Pay close attention to the “Eligible Expenses” section.
• What “good” looks like: You have a clear understanding of broad categories of eligible expenses and any specific exclusions mentioned in your plan.
• Common mistake and how to avoid it: Assuming all medical expenses are eligible. Avoid this by reading your plan’s specific list of covered items and services.

2. Consult the IRS Publication 502:

• What to do: Refer to IRS Publication 502, “Medical and Dental Expenses,” for a comprehensive, though general, list of deductible medical expenses. Many of these are also FSA-eligible.
• What “good” looks like: You can cross-reference items from your plan with IRS guidelines for a broader perspective.
• Common mistake and how to avoid it: Relying solely on IRS publications without checking your specific plan. Avoid this by remembering that your FSA plan can have stricter rules than the IRS allows.

3. Identify “Medically Necessary” Items:

• What to do: For any expense, ask yourself if it’s primarily to diagnose, treat, cure, or prevent a disease or injury.
• What “good” looks like: You can articulate the medical purpose for the expense.
• Common mistake and how to avoid it: Purchasing items for general health or convenience. Avoid this by focusing on treatment and diagnosis, not general wellness.

4. Check for Over-the-Counter (OTC) Eligibility:

• What to do: Verify if your FSA covers OTC medications and supplies like pain relievers, bandages, or diagnostic kits. Recent legislation has expanded eligibility for many OTC items.
• What “good” looks like: You know which common OTC items are reimbursable without a prescription.
• Common mistake and how to avoid it: Buying OTC items without confirming eligibility. Avoid this by checking your plan’s list or asking your administrator.

5. Understand Prescription Requirements:

• What to do: For items that might require a prescription, confirm if your FSA plan requires one for reimbursement, even if the item is also available OTC.
• What “good” looks like: You have prescriptions for items where they are required by your plan.
• Common mistake and how to avoid it: Forgetting to get a prescription when needed. Avoid this by always asking your doctor if a prescription is advisable or required for FSA reimbursement.

6. Consider Dental and Vision Expenses:

• What to do: Note that routine dental cleanings, exams, braces, eyeglasses, and contact lenses are typically eligible.
• What “good” looks like: You are aware of the broad coverage for dental and vision care.
• Common mistake and how to avoid it: Assuming cosmetic dental work is covered. Avoid this by distinguishing between medically necessary treatments and elective procedures.

7. Include Dependent Care (if applicable):

• What to do: If your FSA covers dependents, ensure the expenses are for their medical care and that they are covered under your health plan.
• What “good” looks like: You can confidently claim expenses for eligible dependents.
• Common mistake and how to avoid it: Claiming expenses for non-dependents or non-medical items for dependents. Avoid this by carefully reviewing who qualifies as an eligible dependent under your plan.

8. Keep All Documentation:

• What to do: Save all receipts, Explanation of Benefits (EOBs) from insurance, and doctor’s notes or prescriptions related to your claims.
• What “good” looks like: You have a well-organized system for storing all necessary paperwork.
• Common mistake and how to avoid it: Losing receipts. Avoid this by using a digital receipt management system or a dedicated folder.

9. Submit Claims Promptly:

• What to do: Familiarize yourself with your FSA administrator’s claims submission process and deadlines.
• What “good” looks like: You submit claims within the allowed timeframe.
• Common mistake and how to avoid it: Missing deadlines. Avoid this by setting reminders or submitting claims as soon as you incur the expense.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Not reading your FSA plan documents	Ineligible expenses, lost funds, missed reimbursement opportunities.	Dedicate time to review your Summary Plan Description (SPD) or benefits guide thoroughly.
Assuming all medical expenses are eligible	Denied claims, potential tax implications if improperly deducted.	Cross-reference potential expenses with your plan’s eligible list and IRS Publication 502.
Forgetting about the “use-it-or-lose-it” rule	Forfeiting remaining funds at the end of the plan year.	Track your spending throughout the year and anticipate upcoming medical needs.
Not getting a Letter of Medical Necessity	Ineligible for certain long-term or specialized items/services without one.	Ask your doctor if a Letter of Medical Necessity (LMN) is required for specific treatments.
Missing claim submission deadlines	Forfeiting reimbursement for eligible expenses.	Note deadlines on a calendar and aim to submit claims as soon as possible.
Not keeping proper documentation	Inability to substantiate claims, leading to denial and potential repayment.	Develop a system for saving all receipts, EOBs, and doctor’s notes immediately.
Purchasing items for general wellness	Denied claims for items not considered medically necessary for a specific condition.	Focus on expenses that diagnose, treat, cure, or prevent a diagnosed illness or injury.
Overlooking OTC eligibility expansion	Missing out on reimbursement for common drugstore items.	Check your plan’s updated list of eligible OTC products, as many are now covered without a script.
Misunderstanding dependent eligibility	Claiming ineligible expenses for family members.	Verify that dependents meet your plan’s criteria and that expenses are for their medical care.
Not checking for prescription requirements	Denied claims for items that your plan requires a prescription for.	Always confirm with your doctor and plan administrator if a prescription is needed.

Decision rules (simple if/then)

• If an expense is primarily for cosmetic reasons, then it is likely ineligible, because FSAs cover medically necessary treatments.
• If an item is available over-the-counter (OTC), then check your FSA plan first to see if it’s eligible, because coverage varies by plan.
• If you need to purchase a medical device or supply, then verify it’s on your FSA’s eligible expense list, because not all medical items are covered.
• If you have a diagnosed condition, then expenses directly related to treating that condition are more likely to be eligible, because the focus is on medical necessity.
• If you are unsure about an expense, then contact your FSA administrator, because they can provide definitive answers for your specific plan.
• If an expense is for general health and wellness (e.g., vitamins without a specific medical need), then it is likely ineligible, because FSAs are for medical care, not general well-being.
• If your plan offers a grace period or carryover, then understand the exact rules and deadlines, because these are not standard for all FSAs.
• If an expense requires a prescription, then obtain one from your doctor and keep it with your receipt, because this is often a requirement for reimbursement.
• If you’re claiming expenses for a dependent, then ensure they are covered under your health plan and the expense is for their medical care, because eligibility rules apply to dependents as well.
• If you are considering a new type of therapy or treatment, then confirm its eligibility with your FSA administrator before incurring the cost, because some specialized treatments may have specific requirements.
• If you receive an Explanation of Benefits (EOB) from your insurance, then keep it with your receipt, because it can help substantiate your FSA claim.

FAQ

What is the main rule for FSA eligibility?

The primary rule is that an expense must be primarily for medical care, meaning it’s to diagnose, treat, cure, or prevent a disease or injury.

Are over-the-counter (OTC) medications always FSA eligible?

Not always, but many are now eligible without a prescription due to recent legislation. Always check your specific FSA plan’s list of covered OTC items.

Can I use my FSA for dental and vision care?

Yes, typically routine dental cleanings, exams, braces, eyeglasses, and contact lenses are eligible expenses.

What if I have a Letter of Medical Necessity (LMN)?

An LMN from your doctor can help make certain items or services eligible that might otherwise be questionable, especially for long-term or specialized needs.

Can I use my FSA for gym memberships?

Generally, no. Gym memberships are usually considered for general health and fitness, not for treating a specific medical condition, unless prescribed by a doctor for a particular illness.

What documentation do I need to submit for reimbursement?

You typically need a detailed receipt showing the date, provider, service/item, and amount. An Explanation of Benefits (EOB) from your insurance or a doctor’s note may also be required.

What happens if I don’t use all my FSA funds by the end of the year?

Most FSAs have a “use-it-or-lose-it” policy. Some plans may offer a grace period to incur expenses or allow a limited amount to be carried over to the next year.

Are expenses for cosmetic surgery eligible?

Usually not, unless the surgery is medically necessary to correct a deformity due to a congenital abnormality, an accident, or disfiguring disease.

What this page does NOT cover (and where to go next)

• Specific dollar amounts for carryovers or grace periods. (Check your plan documents.)
• Detailed tax implications of FSA usage. (Consult a tax professional.)
• How to file a claim with your specific FSA administrator. (Refer to your administrator’s website or contact them.)
• Eligibility for specific, niche medical treatments or devices. (Contact your FSA administrator or provider for clarification.)
• The difference between a Health Savings Account (HSA) and an FSA. (Research HSA eligibility and benefits.)