BAS provides employers who offer debit cards for their flexible spending account programs a report of participants who have debit card claims that are unsubstantiated. This report is used by employers to document and determine their FSA due diligence and compliance posture.
The IRS requires all expenses paid with an electronic debit card from an FSA to be substantiated in order to confirm that they are eligible FSA expenses. Many expenses paid with an electronic debit card are substantiated automatically at the point of sale. For automatically substantiated expenses, no additional documentation has to be provided to verify the expense (although purchasers must keep all receipts).
Some expenses that cannot be substantiated at the point of sale require the submission of additional documentation to make sure those expenses can be properly paid from an FSA. The debit card may accept those expenses, as the expenses are charged to the card and the merchant is paid, but the expenses will not be considered "verified." The participant must submit appropriate receipts for these expenses to show that they can be properly paid from the FSA.
For an expense to be automatically verified at the point of sale, the following must occur:
- The merchant must have an approved IIAS merchant code.
- The merchant must be using credit card technology that identifies the item being paid as FSA eligible or non-FSA eligible.
- The dollar amount of the expense can match a co-pay amount that has been recognized in the debit card system and a co-pay amount of the plan.
Throughout the year, BAS receives a list of transactions from the debit card provider identifying participant card swipes that are not automatically substantiated at the point of sale. BAS then sends the identified participants a letter asking them to provide BAS with documentation so that BAS can verify that the expense is eligible to be paid from the FSA.
If the participant does not respond to the letter or provides documentation that cannot verify the charge, the participant receives another letter, approximately 30 days after the first letter, informing the participant that he or she still has not properly verified the charge. The participant is given 30 more days to send proper documentation. If the documentation is not received within the second 30 days or if documentation is provided but it is not adequate under IRS for the claim to be substantiated, the participant's debit card is suspended and BAS reports the suspension to the employer on the Unsubstantiated Benny Card Transaction report. The participant may still submit paper claims for other FSA expenses while the card is suspended.
The reports provide FSA plan sponsors an easy way to monitor the use of debit cards under the FSA plan, and gives the employer data to keep with plan records to document their efforts toward plan compliance.
