An Employer's Guide To Offering An FSA Debit Card To Employees

If you’re thinking about offering a flexible spending account (FSA) to enhance your benefit offerings in today’s competitive labor market, then you’ve probably read about FSA debit cards in your research. But you may be wondering how these cards work to determine if they’re a feature you’d like to include in your plan design. What do you need to know about offering an FSA debit card to help you decide? Let’s find out.

In this article, we’ll explain what an FSA debit card is, how they work, advantages to both you and your employees, limits to their use, and FSA administration costs you may incur with these cards. After reading this, you’ll be prepared to decide if you want to provide this added benefit to your employees.

What is an FSA debit card?

An FSA debit card is linked to an employee’s flexible spending account. It’s used just like any other debit or credit card at checkout either in person or online to access pretax contributions an employee makes to their FSA for qualifying expenses. The amount of the purchase will be automatically deducted from the employee’s FSA account for immediate payment to the provider or merchant.

How does an FSA debit card work?

Even though it looks like a regular debit or credit card, an employee can use a debit card to purchase eligible expenses only. These include:

• Payments to doctors, hospitals and other healthcare providers that are part of your copay or deductible
• Medications backed by a doctor’s prescription, including over-the-counter meds
• Insulin, even without a prescription
• Necessary medical equipment such as crutches
• Diagnostic devices like glucose monitors or blood pressure cuffs
• Supplies such as bandages
• Vision care, including eyeglasses or contact lenses
• Regular dental care, maintenance, and procedures as well as orthodontics  

Even if a merchant approves an employee’s purchase for one of these expenses, you’ll want to advise them to keep their receipts in case your third-party administrator wants to verify the purchase. That’s because the IRS requires that all FSA reimbursements be substantiated.

Where can employees use their card?

An employee can use their card in various settings:

• Provider offices like a doctor, dentist, or physical therapist
• Pharmacies and other retail stores that sell eligible goods such as supermarkets or superstores
• Online merchants (in fact, some make it easy to identify eligible products like Amazon, who has an FSA store)

It’s important to note that not all providers may be set up to accept FSA debit cards. In that case, an employee would need to pay using a different form of payment then file a claim for reimbursement. Typically, they’d need to show the date the item was purchased or service provided, description, name of provider or merchant, and the amount of the expense.

How does an FSA debit card help my employees?

By offering an FSA debit card feature, your employees will realize 3 key benefits:

1. Time savings. Instead of having to pay out of pocket then file a claim and wait for reimbursement, many merchants have inventory systems that communicate with your plan’s administrator so eligibility information is sent automatically and verified on the spot.
2. Self-service. Employees can login to their accounts online or via an app to check their card activity as well as remaining funds. This feature can be particularly useful near year’s end since FSAs have a use-it-or-lose-it policy, meaning members need to use the funds by the end of the plan year or risk forfeiting them.
3. Convenience. FSA debit cards can be used in a variety of settings and for an increasingly growing list of expenses. In addition to paying for their own products and services, employees can also use the cards to cover purchases for their spouse and eligible dependents.

Are there any advantages to me as an employer?

In addition to employee perks, FSA debit cards also provide your company some benefits. These include:

• Greater FSA participation. Since the FSA debit cards make it easier and more convenient for employees to use their funds, you’ll likely see greater interest and participation in your plan.
• Improved efficiencies. Because the cards will generally automatically determine eligibility at the point of purchase and employees can check their usage and balances on their own, they can free your staff up from having to answer a lot of questions.
• Enhanced satisfaction. By making it easier for employees to utilize their FSAs and take advantage of the tax savings these accounts offer, you’ll likely increase their satisfaction with your benefit offerings, which can help drive retention.

How to Decide if Offering an FSA Debit Card is Right for Your Business

There are a lot of features that make FSA debit cards a valuable addition to your benefit offering. The key is to make sure employees understand how they work and what they can be used for to optimize their advantages to you and your staff.

If an FSA debit card sounds like a good idea for your business, you’ll want to make sure you’re compliant with applicable laws and regulations governing pre-tax accounts. Read our next article for additional guidance on the rules for administration of FSAs.