Flex-Ed: How to fix mistakes with FSA funding and reimbursements

Mistakes are common. But when you make a mistake with your FSA reimbursements or funding, you need to be able to fix them ASAP, so you're not caught paying for them later. As in, you want to be sure that you're using your FSA correctly so that you're not required to pay your reimbursements back or stuck with money you can't use.

Sure, you can have the best-laid plans, but stuff happens. Instead, take a look at the following scenarios in case you made one of those mistakes, and what you can do about it.

Your receipts weren't clear

Just because you know what you spent your money on, doesn't mean your FSA administrator is clear on it. Yes, you have receipts backing up your purchase but that doesn't mean it automatically counts as solid proof.

Let's say you purchased got a prescription for a bunch of antibiotics at the pharmacy. You decided to submit the credit card receipt to your FSA provider. Unfortunately, that's not enough proof because the IRS requires you have an itemized receipt.

If your FSA administrator comes back to you and says your original receipt isn't acceptable proof, you should be able to resubmit. Now's the time to find that itemized receipt — whether it's your prescription with the price on it, or go back to the pharmacy if you need to and see if they'll print another one for you.

Otherwise, you can submit what's called an Explanation of Benefits (EOBs) that you'll receive in the mail from your health insurance provider -- basically, a fancy way of explaining a part of your transaction. What it needs to include is your name, date of purchase, the provider/retailer's name, price of the item, and the name of the item or service. Don't worry though - this is standard information to be included on all EOBs.

Even if you made the initial mistake, you can still fix it as long as you provide ample proof as quickly as possible.

You overallocated your FSA

Maybe you overestimated how much you'll need and you contributed a bunch of extra money to your FSA. Now you realize, you may not have enough qualified medical expenses to spend it all. The good news is that it's still your money. The bad news is that you're at risk of losing it of you don't take action.

Before assuming you don't have enough qualified medical expenses, make a list of things you may need. Perhaps it's time to replace your broken pair of glasses, or you're eyeing that foot circulator but were scared to make the purchase. Be strategic about what you want to purchase and make sure it's something you need, and you're not spending money just to spend it.

Something else to consider is looking into your FSA plan to see if there's a rollover option — typically up to $500 per year — or you may be able to take advantage of a Grace Period, if you have one, giving you extra time to spend down your funds. This way, you can still keep your cash longer without feeling like you have to buy things you don't need (which you shouldn't do, anyway).

Keep in mind that you won't have both the rollover and Grace Period option, and plans are not required to offer either so map out your purchases depending on what your plan offers.

You submitted an incorrect claim form or have no matching receipts

Don't freak out. If you submitted the wrong form, contact your FSA provider right away and see if you can resubmit. It's as simple as that. However, if you make a purchase and don't have a matching receipt, you may be able to substitute one from another qualified transaction.

Let's say you purchased prenatal vitamins and sunscreen and realized you don't have the receipt. Instead, you may be able to find another receipt for a qualified purchase to offset your original purchase. Maybe you buy additional sunscreen or more prenatal vitamins at a different store and submit that receipt, instead. Note that not all administrators will allow this, so you'll want to contact them to find out about your options.

In some cases you may not even need to submit a receipt, although we always advise that you keep them just in case. For example if you used your FSA debit card to make a payment and at a qualified merchant with the proper system in place, your expense may even be automatically approved without the need for documentation.

Mistakes happen to the best of us. The important thing is to recognize them when they happen, correct course and try not to let it happen again.

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New to FSAs? Need a refresher course in all things flex spending? Our weekly Flex-Ed column gives you a weekly dose of FSA Living 101, offering tips for making the most of your tax-free funds. Look for it every Thursday, exclusively on the Learning Center.


Flex-Ed: 4 common FSA misconceptions

We get it. FSAs can be confusing. Between the eligibility lists, the potential to roll over some of your unused funds, even contribution limits, your FSA may be more stressful than anything else. (Though there are some FSA-eligible items that can help combat that.)

We compiled a list of four common FSA misconceptions, from where your unused FSA funds end up to the real rules about stockpiling. The more you know, the farther your FSA can go.

Misconception #1: It's your employer's decision to reclaim your unused FSA funds if you miss the deadline.

This rule comes from powers greater than the occupants of the corner offices. According to IRS rules, any FSA funds that aren't spent before your plan deadline (or after a grace period, if your plan has one) goes back to your employer. This money can also roll over to the following year's account, giving users even more flexibility with their flex spending

Did you know that more than $400 million in FSA funds are lost by FSA account owners each year? If you remember nothing else about your FSA, remember this: use it or lose it.

Misconception #2: Your company can spend your unused FSA funds however they want.

Your company uses reclaimed, unused FSA monies to help offset the cost of administering the FSA plan or to pay off any deficits. They can also return the money to employees via what's called pooling. But the latter is rare, so don't count on it. (Sorry.)

Sure, it can be frustrating that your company gets first dibs on your unused FSA funds. But keep in mind that they may take a loss by offering an FSA plan to employees. For example, if you use all your FSA funds in the early part of the year then leave the company, your employer has to shoulder that balance.

Misconception #3: I can wait until the end of the year, then blow my FSA funds on the eligible items I'll need the next year right before the deadline.

While not expressly forbidden by the IRS, this is definitely frowned upon. Here's why: Your FSA was made available to purchase the products you need for the specific timeframe, like the copay for your annual physical, your monthly supply of contact solution, or the sunscreen you'll need for your beach trip this summer.

FSAs are meant to alleviate the day to day financial burden of health-related items and services, like picking up a prescription, grabbing cotton balls, buying your allergy medication. They're not intended to be a means for buying a year's supply of nasal spray in one fell swoop. Plus, that stuff expires, anyway.

Misconception #4: As long as my purchase is similar to an FSA-eligible item, I should be covered.

While this misconception is understandable, the rules about what is FSA-eligible – and what isn't – are pretty cut and dry, and there isn't much ambiguity. For example, prenatal vitamins are covered because they're considered medically necessary for healthy pregnancies. But traditional vitamins aren't, because they're not directly connected with diagnosing, preventing or managing a specific medical condition.

Diapers are also confused, since standard diapers don't qualify, but training pants (like Pull-Ups) do, because they're used to prevent bedwetting and incontinence.

These are just a few examples. Check out our eligibility list if you're unsure, because it's better to be FS-safe than sorry.


New to FSAs? Need a refresher course in all things flex spending? Our Flex-Ed column gives you a dose of FSA Living 101, offering tips for making the most of your tax-free funds. Look for it every Thursday, exclusively on the Learning Center.