NU Online News Service, May 8, 2003, 5:51 p.m. EDT – The Internal Revenue Service says employers can use debit cards, credit cards and the Web to run flexible spending arrangements and health reimbursement arrangements.
But, to ensure that employees can exclude FSA and HRA contributions from taxable income, an employer’s procedures must “specifically limit reimbursements or payments of claims to eligible medical expenses,” according to Barbara Pie, an IRS associate chief counsel.
An employer does not have to get a receipt for every transaction, but administrative procedures should substantiate that every claim paid seeks reimbursement for an eligible medical expense, Pie writes in IRS Revenue Ruling 2003-43.
The ruling is scheduled to appear May 27 in Internal Revenue Bulletin 2003-21.
For companies that want to develop card-based and Web-based FSA and HRA administration systems, the ruling “is an absolute help, with no qualifications,” says Donna Porritt, a senior vice president in a division of Evolution Heatlh L.L.C., Avon, Conn., that sells card-based administration systems. “This is nothing more than a clear victory for the whole market.”
FSAs and HRAs are authorized by Section 105 of the Internal Revenue Code. The section lets employees exclude contributions to FSAs and HRAs from taxable income, but it also lists complicated rules for determining which expenses are eligible for reimbursement.
Some FSA and HRA participants fail to seek reimbursement for expenses that are eligible for reimbursement simply because they have too little time to file the required receipts, and some employers shy away from offering FSA and HRA programs because of the administrative hassles involved, benefits experts say.