HRA substantiation requirements are the documentation rules that every claim must satisfy before your plan can reimburse you tax-free. Under IRC Section 105(b), a Health Reimbursement Arrangement payment is excluded from your income only when it actually pays for medical care of you, your spouse, your dependents, or your children under age 27.1Office of the Law Revision Counsel. 26 USC 105 – Amounts Received Under Accident and Health Plans To prove that, each claim has to carry five pieces of information on a document the administrator can verify. Miss any of them, and the claim is either delayed until you produce the missing detail or denied outright.
The Five Data Points Every Claim Must Show
Plan administrators are looking for the same five items on every submission:
- Provider or merchant name, so the administrator knows where the transaction happened and whether the seller offers medical goods or services.
- Patient name, confirming the expense was for a person the plan covers.
- Date of service, which must fall inside your active coverage period. A cost incurred before the plan started or after it ended does not qualify, no matter when the bill arrives.
- Description of the service or product, detailed enough for the administrator to decide whether it counts as medical care.
- Your out-of-pocket amount, meaning the dollars you owe after insurance or discounts. This keeps the plan from reimbursing something your insurer already paid.
The description requirement is where most gray-area denials happen. IRC Section 213(d) defines medical care as expenses for diagnosing, treating, mitigating, or preventing disease, or for affecting any structure or function of the body, and it specifically excludes cosmetic surgery unless it corrects a deformity from a congenital condition, an accident, or a disfiguring disease.2Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses IRS Publication 502 lists which expenses fall on each side of that line.3Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
Which Documents Administrators Will Accept
An Explanation of Benefits (EOB) from your insurance carrier is the strongest form of proof. Once your insurer processes a claim, the EOB shows the provider, patient, date, treatment codes, and your remaining balance. If the expense went through your carrier at all, pulling the EOB from the insurer’s portal is usually the fastest path to approval.
Itemized bills from a doctor, hospital, dentist, or other provider work well for services insurance did not cover and for flat copayments. The bill has to break charges out by service. A statement showing only “Balance Due: $340” will not clear substantiation because it tells the administrator nothing about what was purchased.
Ordinary credit card receipts and bank statements almost never work. They show the merchant and a total but not the patient name or a service description. If a card receipt is all you have, call the provider’s billing department and ask for an itemized statement.
When Debit Card Swipes Don’t Need Receipts
Many HRAs issue debit cards, and the money leaves the plan before anyone reviews paperwork. The IRS approved specific methods that verify expenses automatically at the register so the tax-free status holds up.
Copayment Matching, Recurring Expenses, and Real-Time Verification
Under Revenue Ruling 2003-43, three approaches substantiate a debit card charge without a receipt. If the transaction at a healthcare provider equals an exact multiple of your plan’s copayment for that service, it is fully substantiated. If you refill the same prescription at the same pharmacy for the same amount on a recurring schedule, the plan can auto-approve later refills once the first one is verified. And if the merchant or a third party like a pharmacy benefit manager confirms at the point of sale that the charge is for medical care, no further documentation is needed.4Internal Revenue Service. Revenue Ruling 2003-43
Notice 2006-69 tightened the copayment method: the transaction cannot exceed five times the applicable copay, and if it does, the administrator has to request documentation. The employer also has to independently verify the copay schedule from the health plan, so your own description of your copay is not enough on its own.5Internal Revenue Service. Notice 2006-69 – Health Reimbursement Arrangements
Inventory Information Approval System
Notice 2006-69 also introduced a fourth method: the Inventory Information Approval System (IIAS). At an IIAS-equipped retailer, the payment processor checks each item in your basket against an approved list of medical products using inventory codes. Qualifying items go through; ineligible ones are rejected at the register.5Internal Revenue Service. Notice 2006-69 – Health Reimbursement Arrangements Nothing else is required for those transactions.
At a merchant without IIAS, the swipe is not automatically approved. Your administrator will contact you asking for documentation, and you typically have 60 days to send it. Miss that deadline and the administrator can deny the claim and require you to repay the plan.
Over-the-Counter Items and Menstrual Products
Before 2020, over-the-counter medications needed a doctor’s prescription to qualify. Section 3702 of the CARES Act removed that requirement for amounts paid after December 31, 2019.6Congress.gov. H.R.748 – 116th Congress (2019-2020): CARES Act Pain relievers, allergy medicine, and cold remedies now qualify with no prescription. The same law added menstrual care products, including tampons, pads, liners, and cups, to the list of reimbursable expenses.7Internal Revenue Service. IRS Outlines Changes to Health Care Spending Available Under CARES Act
Eligibility is broader; documentation is not. A retail receipt has to show enough detail to identify the specific product. A line reading only “pharmacy” or “health and beauty” will be denied because it does not prove the purchase was a qualifying item. You need the brand name or a specific product description alongside the price. IIAS stores handle this automatically at checkout. Everywhere else, keep the detailed receipt.
Letters of Medical Necessity for Gray-Area Items
Some purchases sit between medical care and general wellness. A standing desk, air purifier, or gym membership can be reimbursable, but only if a licensed provider certifies the item is medically necessary for a specific condition rather than good for general health. That certification is a Letter of Medical Necessity (LMN).
A workable LMN generally includes the specific diagnosis being treated, a statement that the item or service is medically necessary for that condition, the expected duration of treatment (or “lifetime” for chronic conditions), and a statement that the item is not for general health or cosmetic purposes. It has to be signed and dated by a licensed practitioner. Without one, dual-purpose items get denied because the administrator has no way to tell a medical purchase from a personal one.
What Happens If Substantiation Fails
The stakes go well past a single denied receipt. Revenue Ruling 2003-43 is explicit: when a plan’s procedures allow reimbursement regardless of whether medical expenses were actually incurred, all payments to all employees under the plan become taxable for that year.4Internal Revenue Service. Revenue Ruling 2003-43 An IRS examiner who finds a plan routinely skipping substantiation can reclassify every reimbursement as wages, which creates income tax exposure for employees and payroll tax exposure for the employer.
Qualified Small Employer HRAs have a narrow cure. IRS Notice 2017-67 lets a QSEHRA avoid losing its tax-exempt status after a mistaken reimbursement if the employee either provides the missing documentation or repays the amount with after-tax funds before the earlier of March 15 of the following year or the date the IRS notifies the employer of the issue during an examination.8Internal Revenue Service. Notice 2017-67: Qualified Small Employer Health Reimbursement Arrangements Miss the window and all payments under the arrangement become taxable for every employee from the date of the error forward.
Individual coverage HRAs also require substantiation before each reimbursement. If the plan later discovers an employee’s documentation was inaccurate, it must stop further reimbursements to that employee for the period the bad documentation covered.9Federal Register. Health Reimbursement Arrangements and Other Account-Based Group Health Plans
Appealing a Denied Claim
The denial notice should say what was missing or why the expense did not qualify. Most denials come down to insufficient documentation, so the fix is often as simple as pulling the EOB or asking the provider for an itemized bill and resubmitting.
When you genuinely disagree about eligibility, you have formal appeal rights. Most employer-sponsored HRAs are governed by ERISA, which gives you at least 180 days from the date you receive a denial notice to file an appeal. For post-service claims, the plan must respond within 60 days if it uses one level of appeal, or within 30 days per level if it uses two.10eCFR. 29 CFR 2560.503-1 – Claims Procedure Missing the appeal deadline generally ends the claim, so mark the date the moment a denial arrives.
Include whatever documentation the denial requested plus a short explanation of why the expense qualifies. For gray-area items, an LMN from your provider strengthens the appeal.
How Long to Keep Your Records
The IRS generally requires tax-related records for three years from the date you filed the return, or the due date if that is later. That covers the EOBs, itemized receipts, and LMNs you submitted. If you underreported gross income by more than 25%, the period extends to six years.11Internal Revenue Service. How Long Should I Keep Records
Keep HRA documentation for at least three full years after filing. Digital copies are fine. Download EOBs from the insurer’s portal into your own folder rather than relying on the portal to keep them available. If the administrator ever asks you to re-substantiate a past expense, having the original documents on hand is what keeps a routine question from turning into a taxable reclassification.