What Expenses Are Eligible for Reimbursement by a Flexible Spending Account?

Both medical and dependent care flexible spending accounts cover a wide range of expenses. For medical FSAs, all expenses that you can generally take as itemized medical and dental expenses on your tax return are qualified FSA expenses. Qualified expenses include a wide range of medically related costs, such as the following:

• acupuncture
• birth control pills
• chiropractic treatment
• contact lenses
• dentures
• fertility treatment
• laser eye surgery
• lodging to obtain medical care
• psychoanalysis and psychiatric care
• smoking cessation treatment programs
• vasectomies
• X-rays and other diagnostic tests

Exceptions

Exceptions may include amounts paid for health insurance premiums, long-term care insurance premiums or expenses, and expenses that are covered by another health plan. Other ineligible expenses are health club dues, medicines and drugs bought from other countries, hair transplants, and unnecessary cosmetic surgery. For more information on allowable health care FSA expenses, see IRS Publication 502. This publication refers to those medical and dental expenses allowed as itemized deductions, but also outlines those that are qualified health FSA expenses. The major exception is over-the-counter medications, which are a qualified FSA expense.

Qualified Expenses for a dependent care FSA

For a dependent care FSA, expenses that cover the care of a dependent child under 13 or a dependent adult while the taxpayer is either working or actively looking for work, are covered. These include adult daycare, after-school care, in-home or outside-of-the-home daycare, au pair or nanny fees or salary, day camp, emergency daycare, preschool tuition, and elder care. Ineligible expenses include kindergarten or elementary school tuition, overnight camp, boarding school, and convalescent home expenses for elderly or disabled dependents. While overnight camp expenses are generally not allowable, those expenses that are incurred for the daycare portion of the overnight camp are eligible for inclusion. You can deduct childcare expenses while you are actively looking for work if you have earned income for the year. You can also use dependent FSA funds to pay a non-parent relative to care for a child or disabled or elderly dependent. If you or your spouse is employed part-time, dependent care expenses must be allocated between days worked and days not worked, and only expenses from days worked are eligible for reimbursement from your FSA. For a list of qualified child and dependent care expenses eligible for dependent care FSA spending, see IRS Publication 503, Child and Dependent Care Expenses.

Most companies allow you to use your FSA funds for qualified expenses incurred by you, your spouse, and your dependent children. Your spouse must be a person to whom you are legally married as permitted under applicable state law. "Dependents" generally must be either:

1. a child (son, daughter, stepchild, etc.) who lives with you more than half of the year and who is 18 years or younger for the entire calendar year (or under age 24 and a student for the entire year) or is permanently and totally disabled, or
2. A "qualifying relative" who lives at the same principal place of residence as you for the entire year and receives at least half of his/her financial support from you. In addition, the relationship between you and the qualifying relative cannot be in violation of local law.

This means that your FSA funds may not be used for qualified medical expenses incurred by a domestic partner unless the domestic partner meets the definition of a "qualifying relative." If the domestic partner is not a "qualifying relative," you cannot pay for his or her medical expenses with FSA funds.