HSA/FSA

How Does HSA and FSA Reimbursement Work?

Learn how to save with confidence and get reimbursed with ease.

May 15, 2024
Sam O'Keefe
Co-founder & CEO of Flex
Flex - How Does HSA and FSA Reimbursement Work?
Flex - How Does HSA and FSA Reimbursement Work?

Overview

Overview

Overview

Saving money on health care expenses is the name of the game when it comes to Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). Actually using your funds can be a bit of a process, though.

So how does HSA/FSA reimbursement work? 

We’ve got you covered. In this article, we discuss: 

  • What you can use HSA and FSA funds for

  • How to pay with these accounts (and get reimbursed, of course)

  • And lastly, key differences between HSAs and FSAs to be mindful of

What is HSA/FSA Reimbursement?

You probably know what HSAs and FSAs are, but here’s a quick refresher just in case: these tax-advantaged accounts are a way to save money on common and not-so-common health care expenses. On average, consumers save 30 to 40% percent on purchases they make with their HSA/FSA because money you put into and take out of the accounts are not taxed.

More so, they allow you to be proactive about choosing products or services that address a specific medical condition which insurance might not typically cover.

There are two ways to use your HSA or FSA to pay for qualified medical expenses:

  1. Typically, HSAs and FSAs come with a debit card that allows you to pay for products and services at the point-of-sale. Like a standard debit card, transactions are limited to your current balance.* 

  2. However, sometimes you need to pay out of pocket first. In this case, you need to submit a claim for reimbursement from your HSA or FSA administrator.

One interesting note about FSAs is that you can use funds on the first day of your plan year, even if there is no money in it yet (more info below).

Let’s discuss the two cases.

When you can use your HSA/FSA debit card vs. when you’ll need to pay out of pocket

Paying with your HSA/FSA debit card 

You can use your HSA or FSA debit card to pay for common health care expenses at the point-of-sale, like prescription medications and copays. 

Most people know of the straightforward items, but the Internal Revenue Service (IRS) has a whole set of guidelines for what is covered (and it’s more expansive than you might expect, for example, you can pay for air purifiers or even a gym membership).

Items on this list are considered qualified medical expenses and the general rule is that these items or services “must be primarily to alleviate or prevent a physical or mental disability or illness”. This includes costs associated with diagnosis, cure, mitigation, treatment, or prevention.

To make the most of your account, you’ll want to review the guidelines.

Paying out of pocket

There are several situations where you have to pay out of pocket first. 

1) To start, while the Medical and Dental Expenses list is pretty comprehensive, the IRS allows consumers some flexibility to pay for non-qualified items.

Essentially, the list can’t cover all cases so the IRS gives doctors leeway to determine whether an item or service qualifies for HSA or FSA spending if it addresses a specific medical condition for their patient. In this case, you’ll need to get a Letter of Medical Necessity (LOMN) from your doctor and pay upfront, before submitting for reimbursement.

2) Another case where paying out pocket makes sense is if you don’t currently have enough funds in your account. You can make the purchase and then request reimbursement at a later date in order to take advantage of the tax savings. 

Note that there is no deadline to reimburse yourself for HSAs (as long as the expense was incurred after the account was established), but there are cut-off dates for FSAs.

3) Lastly, you can always pay out of pocket first and submit for reimbursement, should you choose. 

Differences between using your HSA and FSA

There are some important differences to be mindful of when using an HSA vs. an FSA:

Reimbursement Rules: How to Reimburse From Your HSA or FSA

The process for reimbursement varies slightly between HSAs and FSAs.

How to submit HSA reimbursement

Since the account is owned by you, responsibility for tax reporting also falls on you. As such, HSA administrators generally don’t require as many details for documentation or claim forms for reimbursement requests as an FSA administrator does. This will vary by administrator, though, and you may have to provide similar details to the FSA requirements outlined below.

There are a few common ways you can be reimbursed:

  1. Use your HSA debit card to withdraw funds from an ATM.

  2. Transfer money from your HSA web portal to your own checking or savings account (if your provider offers this option).

  3. You may also be able to request a check if your provider offers this option.

Deadlines: There are no deadlines for HSAs, you can request reimbursement at any time as long as the purchase was made after the HSA was established. 

How long does HSA reimbursement take? It depends on your provider, but in most cases electronic transfers will only take a few business days. Checks typically take longer.

How to submit FSA reimbursement

You can get reimbursed for incurred expenses with your FSA. This means that you can only request a reimbursement after the service or product has been provided — you cannot be reimbursed in advance.

To submit your reimbursement, go to the web portal for your FSA administrator. Generally, they will have a claims form that asks for things like:

  • Your personal information

  • Details about the product or service

  • Information about the provider 

  • Amount paid

  • Date of service

  • A written statement that the expense hasn’t been paid or reimbursed under any other health plan coverage

  • A receipt and possibly other proof that the service was rendered

Typically, you can provide a photocopy of your itemized receipts for FSA reimbursement. 

Deadlines: There is often a deadline each year by which reimbursements must be claimed (usually by the end of the plan year or a grace period thereafter).

How long does FSA reimbursement take? Again, it depends on your provider, but since there tends to be more documentation required to approve a claim, this is often a longer process than for HSAs. We see that online claims are generally processed within 2-5 business days of receipt.

How HSA and FSA Distributions and Reimbursements Are Taxed and Reported

Tax reporting for your HSA

A withdrawal from your HSA is considered a distribution, and they are non-taxable for qualified medical expenses. You must report your withdrawals to the IRS each tax season via a 1099-SA form.

Contributions are tax-deductible and you can contribute to the account throughout the tax year, but this is limited to $4,150 for individuals and $8,300 for families in 2024. Because your HSA rolls over each year, you can withdraw more than you contribute in that year (which is not the case for FSAs).

Tax reporting for your FSA

Similar to HSAs, withdrawals for qualified medical expenses are non-taxable.

At the beginning of the plan year, you must designate how much you want to contribute. Your employer will then deduct amounts throughout the year for your contribution, typically with every paycheck, thus effectively lowering the gross income you will claim at the end of year. No employment or federal income taxes are deducted from your contribution.

Maximum contributions are determined by your employer, but are limited to $3,200 in 2024. It’s also important to note that the maximum amount you can withdraw tax free is the total amount you elected to contribute for the year.

What happens if you try to reimburse an ineligible item?

This is something you don’t want to do, but sometimes emergencies happen.

If you withdraw funds for any other reason than paying for qualified medical expenses you will be taxed on the withdrawn funds at your ordinary income tax rate and may also incur a 20% penalty.

Once you reach 65, the game changes and you can use the funds for non-medical expenses without the penalty.

There is an exception here: if you have a Letter of Medical Necessity (LOMN) from a doctor which stipulates why a product or service is necessary to address a specific medical condition, a typically ineligible item can be reimbursed. 

Some examples might be an at home biomarker test should a patient not be able to get to a laboratory or specialty orthopedic footwear to address discomfort associated with plantar fasciitis.

You’ll want to talk with your account provider first to make sure the item may qualify.

Learn more from the IRS itself

We know that’s a lot of detail, but if you feel like going into the weeds the IRS publishes all of the nitty-gritty in their Publication 969 document.

Why It’s Easier to Pay For Medical Expenses With Flex

Flex partners with merchants to make the process super simple for consumers. 

Here’s how it works:

For pre-approved medical expenses: Pay for the product or service with your HSA or FSA card. Flex substantiates the purchase automatically, meaning you don't need to submit for reimbursement.

If the item falls outside of standard IRS guidelines: Flex will check your eligibility for a Letter of Medical Necessity. When you go to checkout, a doctor’s appointment takes place: 

  • Fill out a short eligibility form, sharing relevant information with Flex’s medical team. 

  • If you qualify, Flex sends the LOMN to you via email.

  • Then, simply enter your HSA or FSA card details and complete the purchase. Again, no more need for reimbursements!

Health Care Spending Your Way

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) offer a unique blend of tax benefits and savings options to give you more control of your health care spending. 

Today, we primarily covered what you can use your HSA and FSA for, how to pay for products and services, and how to get reimbursed but there’s a lot more to go into. 

As always, be sure to talk with your administrator about specifics of your plan and what’s eligible — happy health care saving!

Saving money on health care expenses is the name of the game when it comes to Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). Actually using your funds can be a bit of a process, though.

So how does HSA/FSA reimbursement work? 

We’ve got you covered. In this article, we discuss: 

  • What you can use HSA and FSA funds for

  • How to pay with these accounts (and get reimbursed, of course)

  • And lastly, key differences between HSAs and FSAs to be mindful of

What is HSA/FSA Reimbursement?

You probably know what HSAs and FSAs are, but here’s a quick refresher just in case: these tax-advantaged accounts are a way to save money on common and not-so-common health care expenses. On average, consumers save 30 to 40% percent on purchases they make with their HSA/FSA because money you put into and take out of the accounts are not taxed.

More so, they allow you to be proactive about choosing products or services that address a specific medical condition which insurance might not typically cover.

There are two ways to use your HSA or FSA to pay for qualified medical expenses:

  1. Typically, HSAs and FSAs come with a debit card that allows you to pay for products and services at the point-of-sale. Like a standard debit card, transactions are limited to your current balance.* 

  2. However, sometimes you need to pay out of pocket first. In this case, you need to submit a claim for reimbursement from your HSA or FSA administrator.

One interesting note about FSAs is that you can use funds on the first day of your plan year, even if there is no money in it yet (more info below).

Let’s discuss the two cases.

When you can use your HSA/FSA debit card vs. when you’ll need to pay out of pocket

Paying with your HSA/FSA debit card 

You can use your HSA or FSA debit card to pay for common health care expenses at the point-of-sale, like prescription medications and copays. 

Most people know of the straightforward items, but the Internal Revenue Service (IRS) has a whole set of guidelines for what is covered (and it’s more expansive than you might expect, for example, you can pay for air purifiers or even a gym membership).

Items on this list are considered qualified medical expenses and the general rule is that these items or services “must be primarily to alleviate or prevent a physical or mental disability or illness”. This includes costs associated with diagnosis, cure, mitigation, treatment, or prevention.

To make the most of your account, you’ll want to review the guidelines.

Paying out of pocket

There are several situations where you have to pay out of pocket first. 

1) To start, while the Medical and Dental Expenses list is pretty comprehensive, the IRS allows consumers some flexibility to pay for non-qualified items.

Essentially, the list can’t cover all cases so the IRS gives doctors leeway to determine whether an item or service qualifies for HSA or FSA spending if it addresses a specific medical condition for their patient. In this case, you’ll need to get a Letter of Medical Necessity (LOMN) from your doctor and pay upfront, before submitting for reimbursement.

2) Another case where paying out pocket makes sense is if you don’t currently have enough funds in your account. You can make the purchase and then request reimbursement at a later date in order to take advantage of the tax savings. 

Note that there is no deadline to reimburse yourself for HSAs (as long as the expense was incurred after the account was established), but there are cut-off dates for FSAs.

3) Lastly, you can always pay out of pocket first and submit for reimbursement, should you choose. 

Differences between using your HSA and FSA

There are some important differences to be mindful of when using an HSA vs. an FSA:

Reimbursement Rules: How to Reimburse From Your HSA or FSA

The process for reimbursement varies slightly between HSAs and FSAs.

How to submit HSA reimbursement

Since the account is owned by you, responsibility for tax reporting also falls on you. As such, HSA administrators generally don’t require as many details for documentation or claim forms for reimbursement requests as an FSA administrator does. This will vary by administrator, though, and you may have to provide similar details to the FSA requirements outlined below.

There are a few common ways you can be reimbursed:

  1. Use your HSA debit card to withdraw funds from an ATM.

  2. Transfer money from your HSA web portal to your own checking or savings account (if your provider offers this option).

  3. You may also be able to request a check if your provider offers this option.

Deadlines: There are no deadlines for HSAs, you can request reimbursement at any time as long as the purchase was made after the HSA was established. 

How long does HSA reimbursement take? It depends on your provider, but in most cases electronic transfers will only take a few business days. Checks typically take longer.

How to submit FSA reimbursement

You can get reimbursed for incurred expenses with your FSA. This means that you can only request a reimbursement after the service or product has been provided — you cannot be reimbursed in advance.

To submit your reimbursement, go to the web portal for your FSA administrator. Generally, they will have a claims form that asks for things like:

  • Your personal information

  • Details about the product or service

  • Information about the provider 

  • Amount paid

  • Date of service

  • A written statement that the expense hasn’t been paid or reimbursed under any other health plan coverage

  • A receipt and possibly other proof that the service was rendered

Typically, you can provide a photocopy of your itemized receipts for FSA reimbursement. 

Deadlines: There is often a deadline each year by which reimbursements must be claimed (usually by the end of the plan year or a grace period thereafter).

How long does FSA reimbursement take? Again, it depends on your provider, but since there tends to be more documentation required to approve a claim, this is often a longer process than for HSAs. We see that online claims are generally processed within 2-5 business days of receipt.

How HSA and FSA Distributions and Reimbursements Are Taxed and Reported

Tax reporting for your HSA

A withdrawal from your HSA is considered a distribution, and they are non-taxable for qualified medical expenses. You must report your withdrawals to the IRS each tax season via a 1099-SA form.

Contributions are tax-deductible and you can contribute to the account throughout the tax year, but this is limited to $4,150 for individuals and $8,300 for families in 2024. Because your HSA rolls over each year, you can withdraw more than you contribute in that year (which is not the case for FSAs).

Tax reporting for your FSA

Similar to HSAs, withdrawals for qualified medical expenses are non-taxable.

At the beginning of the plan year, you must designate how much you want to contribute. Your employer will then deduct amounts throughout the year for your contribution, typically with every paycheck, thus effectively lowering the gross income you will claim at the end of year. No employment or federal income taxes are deducted from your contribution.

Maximum contributions are determined by your employer, but are limited to $3,200 in 2024. It’s also important to note that the maximum amount you can withdraw tax free is the total amount you elected to contribute for the year.

What happens if you try to reimburse an ineligible item?

This is something you don’t want to do, but sometimes emergencies happen.

If you withdraw funds for any other reason than paying for qualified medical expenses you will be taxed on the withdrawn funds at your ordinary income tax rate and may also incur a 20% penalty.

Once you reach 65, the game changes and you can use the funds for non-medical expenses without the penalty.

There is an exception here: if you have a Letter of Medical Necessity (LOMN) from a doctor which stipulates why a product or service is necessary to address a specific medical condition, a typically ineligible item can be reimbursed. 

Some examples might be an at home biomarker test should a patient not be able to get to a laboratory or specialty orthopedic footwear to address discomfort associated with plantar fasciitis.

You’ll want to talk with your account provider first to make sure the item may qualify.

Learn more from the IRS itself

We know that’s a lot of detail, but if you feel like going into the weeds the IRS publishes all of the nitty-gritty in their Publication 969 document.

Why It’s Easier to Pay For Medical Expenses With Flex

Flex partners with merchants to make the process super simple for consumers. 

Here’s how it works:

For pre-approved medical expenses: Pay for the product or service with your HSA or FSA card. Flex substantiates the purchase automatically, meaning you don't need to submit for reimbursement.

If the item falls outside of standard IRS guidelines: Flex will check your eligibility for a Letter of Medical Necessity. When you go to checkout, a doctor’s appointment takes place: 

  • Fill out a short eligibility form, sharing relevant information with Flex’s medical team. 

  • If you qualify, Flex sends the LOMN to you via email.

  • Then, simply enter your HSA or FSA card details and complete the purchase. Again, no more need for reimbursements!

Health Care Spending Your Way

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) offer a unique blend of tax benefits and savings options to give you more control of your health care spending. 

Today, we primarily covered what you can use your HSA and FSA for, how to pay for products and services, and how to get reimbursed but there’s a lot more to go into. 

As always, be sure to talk with your administrator about specifics of your plan and what’s eligible — happy health care saving!

Flex is a modern marketplace for consumers to discover and purchase HSA/FSA eligible products. From fitness and nutrition, to sleep and mental health, Flex takes a holistic view of healthcare and enables consumers to use their pre-tax money to do the same.

Requirements for reimbursementWho owns the account?You do. If you change jobs, your HSA is still yours.Must be offered by your employer, so in most cases, you’ll lose your FSA if you change jobs.Since you own the account most HSA administrators don’t require as much documentation as with an FSA, though this varies. You will want to hold on to receipts should you be audited.Typically needs to be submitted to the FSA administrator for approval, alongside receipts or proof of the medical expense along with a completed claim form.Not typically.Some FSA administrators require documentation in order to substantiate the payment.No. You can request reimbursement at any time as long as the purchase was made after the HSA was established.There is often a deadline each year by which reimbursements must be claimed (usually by the end of the plan year or a grace period thereafter).Your responsibility. You must report your total withdrawals to the IRS every year on a 1099-SA form. Typically, this is provided by your HSA administrator.There are no reporting requirements for Health Care FSAs on your income tax return since contributions come out of your paycheck and will be included on your W-2.Contributions are tax-deductible, but can also be taken out of your pay pretax. Growth and distributions are tax-free if used for eligible medical expenses.Contributions are pre-tax and distributions are tax-free and can only be used for eligible medical expenses.YesSome workplaces allow employees to roll over a portion of their unused funds but it is uncommon.Some plans may also include a grace period or “run-out” which allows you to submit reimbursement claims after the plan year has ended, typically up to 2.5-3 months later. You will want to review the terms of your plan to be sure.Doctor’s offices, hospitals, pharmacies, and other medical care providers. Note that to use your card at a retailer or ecommerce site, they need to have an appropriate Merchant Category Code and/or Inventory Information Approval System, otherwise your card will be declined.Same as HSA.HSAFSAWhere can you use your HSA/FSA debit card?Documentation required to use your debit card?Deadline for reimbursements?Tax reportingTax implicationsDo funds rollover?
Requirements for reimbursementWho owns the account?You do. If you change jobs, your HSA is still yours.Must be offered by your employer, so in most cases, you’ll lose your FSA if you change jobs.Since you own the account most HSA administrators don’t require as much documentation as with an FSA, though this varies. You will want to hold on to receipts should you be audited.Typically needs to be submitted to the FSA administrator for approval, alongside receipts or proof of the medical expense along with a completed claim form.Not typically.Some FSA administrators require documentation in order to substantiate the payment.No. You can request reimbursement at any time as long as the purchase was made after the HSA was established.There is often a deadline each year by which reimbursements must be claimed (usually by the end of the plan year or a grace period thereafter).Your responsibility. You must report your total withdrawals to the IRS every year on a 1099-SA form. Typically, this is provided by your HSA administrator.There are no reporting requirements for Health Care FSAs on your income tax return since contributions come out of your paycheck and will be included on your W-2.Contributions are tax-deductible, but can also be taken out of your pay pretax. Growth and distributions are tax-free if used for eligible medical expenses.Contributions are pre-tax and distributions are tax-free and can only be used for eligible medical expenses.YesSome workplaces allow employees to roll over a portion of their unused funds but it is uncommon.Some plans may also include a grace period or “run-out” which allows you to submit reimbursement claims after the plan year has ended, typically up to 2.5-3 months later. You will want to review the terms of your plan to be sure.Doctor’s offices, hospitals, pharmacies, and other medical care providers. Note that to use your card at a retailer or ecommerce site, they need to have an appropriate Merchant Category Code and/or Inventory Information Approval System, otherwise your card will be declined.Same as HSA.HSAFSAWhere can you use your HSA/FSA debit card?Documentation required to use your debit card?Deadline for reimbursements?Tax reportingTax implicationsDo funds rollover?