Flexible Spending Accounts (FSAs) are an important part of consumer directed healthcare. The tax-advantaged accounts allow participants to pay for out-of-pocket medical expenses that may not be covered by their health insurance plans.
Many companies offer FSAs as part of their employer-sponsored benefits packages. It’s estimated that 41 percent of all private industry workers and 69 percent of state and federal workers have access to an FSA.
If you participate in the benefits account, you’re probably wondering which products and services are considered FSA eligible expenses. It’s a long, extensive list, but very important information for FSA participants.
The following identifies most FSA eligible expenses and non-eligible expenses according to the IRS. In March 2020, the purchase of over-the-counter medications and menstrual care products was approved by Congress.
FSA Eligible Expenses
FSA Eligible Expenses – Services
- Alcoholism and Drug Addiction treatment
- Ambulance services
- Annual physical examination
- Body scan (electronic)
- Dental treatments (most)
- Disabled dependent expenses for medical care
- Eye exams
- Eye surgery
- Fertility treatments
- Home for the Intellectually and Developmentally Disabled
- Hospital services (including meals and lodging)
- Laboratory fees (associated with medical care)
- Lead-based paint removal
- Long-term care and services for chronically ill individual
- Nursing home and services
- Organ transplants
- Psychiatric care
- Special education
- Transportation expenses for medical treatments and services
- Weight loss program (requires physician’s diagnosis)
FSA Eligible Expenses – Products
- Artificial teeth
- Birth control and contraceptive devices
- Braille reading material
- Breast feeding supplies/lactation expenses
- Capital expenses (home improvements that accommodate a disabled person)
- Communication equipment for the deaf or speech impaired
- Contact lenses and eyeglasses
- Co-pays, co-insurance, and deductibles
- Crutches (purchased or rented)
- Diagnostic devices (blood sugar monitors, blood pressure monitors, etc)
- Guide dog or other service animals
- Hearing aid expenses (batteries, repairs, and maintenance)
- Insulin and diabetic supplies
- Medical Conference expenses (if related to personal chronic illness)
- Menstrual care products
- Over-the-counter (OTC) medications
- Oxygen and oxygen equipment
- Pregnancy test kits
- Prescription drugs and medicine
- Prosthesis (including artificial limbs and breast reconstruction surgery)
- Smoking cessation (OTC medicines and treatment plans)
- Wigs (for hair loss due to disease or medical treatment)
- Vehicular expenses (for operational and design costs that accommodate a disabled person)
NOT FSA Eligible Expenses
- Babysitting, child care or nursing for healthy baby
- Controlled substances (Illegal under federal law, such as marijuana, laetrile, etc)
- Cosmetic surgery not related to a deformity or illness (i.e., facelift, liposuction, etc)
- Dancing lessons
- Diaper services (unless related to effects of disease)
- Funeral expenses
- Future medical care
- Hair transplant or removal
- Health club dues
- Household help
- Illegal operations and treatments
- Insurance premiums
- Maternity clothes
- Medicines and pharmaceuticals from another country
- Nutritional supplements
- Swimming lessons
- Teeth whitening
- Veterinary fees (unless for service animal)
FSA Eligible Expenses Require IRS Approval
It’s important to remember that qualified expenses must be approved by the IRS. According to IRS Publication 502:
Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.
Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They don’t include expenses that are merely beneficial to general health, such as vitamins or a vacation.
Where Can I Buy FSA Eligible Items?
Products that qualify as FSA eligible expenses can be found online at FSAStore.com* and at many retailers around the nation including Walmart and Target. These eligible expenses include sunscreen, smoking cessation aids, first aid merchandise, cold and allergy medicine, family planning products, and more. Some products require a prescription or a receipt with Letter of Necessity. It’s a good rule of thumb to always keep your receipts, prescription documents, and other expense-related records as the IRS may request this information during an audit. You may also need some of these papers in order to receive reimbursement.
FSA account funds can be used for expenses by the account holder, spouse, children, and other qualified dependents.
An Important Note About Purchasing FSA Eligible Items
If you have an FSA, you can access the full amount of your annual contribution on the first day of the plan year. For example, if you elect $2,000, and on day one you incur $2,000 of FSA eligible expenses, you can use all of your FSA money to pay for it, even though the money has not fully accrued in the account yet. Throughout the rest of the year, deductions will still come at the same rate from each paycheck. However, the available FSA balance will be at zero once all the funds are spent.
For a complete list of FSA eligible expenses, refer to IRS Publication 502 or consult your FSA administrator. If you’re interested in participating in an FSA or want more information about how the accounts work, contact your company’s HR department. Learn more about 2020 FSA contribution limits.
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