What Every Employer Should Know About Debit Cards and Flexible Spending Accounts

The IRS has issued clear guidance that every card payment must be adjudicated and properly substantiated. The only exception to the substantiation requirements are for card transactions that fit into well-defined “auto adjudication” categories. These categories are clearly defined in our clients’ Summary Plan Descriptions.

Despite the clarity of existing IRS guidance, some administrators continue to allow participants to self-certify card transactions. Although this approach is attractive from a processing and employee relations perspective, it puts the tax-free nature of the plan at risk and subjects both participants and the employer to severe tax consequences.