The idea that saving receipts is a pain is ridiculous. I would save these anyway, as the FSA company (the Third-Party Administrator [TPA]) is in no way responsible for questioning expenses- it ALL falls under the strict IRS regulations, the FSA company is simply the messengar and the "Administrator" (the "A" in "TPA") of the program.

I've had an FSA for over five years now, and have only had expenses questioned for which I can count on one hand. Each time it meant a quick fax or even email with a PDF scan and it was taken care of. The systems flag unusual expenses with strange totals if you suddenly have a new prescription, etc. Any forfeited amounts that the companies or IRS seem to be gaining (mentioned in these posts) is simply due to people's inability to project expenses accurately.

ANY doctor's fees or prescriptions most certainly fall under the FSA (split into HCRA (HealthCare) and DCRA (Dependent Care [i.e. daycare]) accounts. ANYTHING THAT IS USED TO TREAT A SYMPTOM (As a rule of thumb) is eligible. So, nothing like vitamins or supplements, or big-screen televisions will fly (nothing preventative).

The FSA allows you to use pre-tax dollars to pay for co-pays and OTC medicine, etc. If you dont' use the card, you have to pay out of pocket, and then submit for reimbursement. If you want to squabble about 2% bonuses/dicsounts on using your own credit card, the pre-tax benefits far outweigh that, as you are then double-dipping: you're taxed on your paycheck, then you're paying tax again on those purchases… and, if you are like most Americans, that credit card debt will not be paid off immediately… meaning you're paying interest. Not a good scenario.

After hearing from one of my staff last month that his FSA was locked up for a purchase in May, I decided to check mine. Sure enough, mine was locked up for two drug store and one dentist transactions in FEBRUARY. I then had to locate the two receipts from Feb and call my dental insurance to get a statement of benefits that shows what was not covered (like I would make up going to the dentist..it's just so much fun to get a root canal.) I don't understand why they needed the dentist records since the charge was put thru at their offices…would I really have paid them over $350 if I didn't have to?

I will never sign up for an FSA again. I am not 12 and know the rules of using the account. The paperwork is just not worth the tax benefit.

I put aside a small amount this year $650, and have only $1.57 left in the account. I feel it was worth the minor effort I had to put forth. Now on to next year, I need to figure out how much to put aside since we have a baby coming along!

Consider this:

1. The IRS is effectively privatizing their audit, with the plan administrators getting 100% of any forfeited amounts. Believe me, in my case they stopped at nothing to ensure funds were forfeited.

They paid amounts used by the debit card, leaving me to believe I had spent the full amount. Then in late august 2008 they said they needed validation of almost all expenses for 2007, going back 18 months. They could have asked for receipts earlier, but of course they wanted to make it as hard as possible for me to comply by the deadline of September 28th.

Although I am good at keeping receipts, most medical providers did not provide acceptable receipts, simply charging the debit card. We spent hours contacting the providers, with mostly full co-operation but some were just not able to give the information the FSA administrator would accept.

Even though we had receipts for expenses well in excess of the $5,000, the administrators would not accept receipts that were not in the original claim for $5,000. I.e. if getting all the required documentation for one expense was proving problematic, we could not replace it with another expense.

2. Official figures show that only 4% of funds are forfeited. However, consided this. If funds are forfeited, you lose not only the funds but you then have to pay taxes on the forfeited funds (see Wikipedia entry on FSA for an explanation of this). Therefore people go to extraordinary lengths to use up the funds, even if it means buying glasses you don't need and throwing the glasses away. If you buy glasses and throw them away then you still lose the money but you no longer have to pay taxes on the money. When the cost of this sort of stuff is added to the 4% the forfeit amount will almost certainly exceed the 15% tax bracket and probably the 25% bracket that most of us pay.

3. If you love being audited then the FSA is for you. You will certainly recieve a very aggresive audit by your plan administrator.

4. Never consider the dependent care FSA. The paperwork involved in claiming back the money is horrendous. You will have to obtain an employee identification number and complete all sorts of tax forms each time you pay a baby-sitter. It will take almost as long to process these forms as the amount of time the baby-sitter spent baby sitting. The taxes and social security that you will have to pay will exceed any of the supposed tax savings gained from the FSA. You will also be substantially increase the chances that you will be audited by the IRS.

We have learned the hard way not to touch these FSA plans.