Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) provide valuable tax advantages for individuals to pay for qualified medical expenses. However, processing transactions with HSA and FSA cards requires adherence to specific regulatory and compliance standards. Understanding the differences between compliant Merchant Category Codes (MCCs) and the 90% rule, as well as the Information Inventory Approval Standard (IIAS) Certification, is crucial for businesses in this space.
Compliant MCCs vs. the 90% Rule
Compliant MCCs
- Definition: Merchant Category Codes (MCCs) classify businesses based on their primary activities. For HSA and FSA transactions, certain MCCs are deemed compliant, meaning they align with IRS regulations for eligible medical expenses.
- Purpose: The use of compliant MCCs ensures that transactions are processed correctly and are eligible for reimbursement under HSA or FSA accounts. This helps both merchants and cardholders avoid issues with denied transactions or compliance violations.
- Examples: MCCs for pharmacies, doctors offices, dental services, medical services, and other medical-related services are typically compliant. Businesses must use MCCs that clearly reflect their health-related services or products. Some examples are listed below:
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MCC 5912 - Drug Stores and Pharmacies Includes pharmacies and drugstores selling prescription and over-the-counter medications.
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MCC 5122 - Drug, Drug Proprietaries, and Druggists’ Sundries Includes businesses that sell drug-related products and sundries.
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MCC 8031 - Doctors and Physicians Includes payments for services provided by doctors and physicians.
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MCC 8049 - Other Medical and Health Services Covers various other medical services not specifically categorized under other MCCs.
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MCC 8050 - Nursing and Personal Care Facilities Includes facilities that provide personal and nursing care.
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MCC 8062 - Hospitals Covers payments to hospitals and similar medical facilities.
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MCC 8071 - Dental and Orthodontic Services Includes services provided by dentists and orthodontists.
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MCC 8099 - Medical Services Not Elsewhere Classified Includes various medical services not covered by other MCCs.
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The 90% Rule
- Definition: The 90% rule is a compliance requirement stipulating that a merchant must attest that at least 90% of their inventory (products) is health-related in order to process HSA and FSA cards.
- Purpose: This rule ensures that transactions are primarily for eligible medical expenses. If a merchant's inventory does not meet this threshold, they may not qualify to accept HSA or FSA cards.
- Impact: Merchants who do not meet the 90% rule may face restrictions or be required to implement additional measures to validate transactions. This rule helps maintain the integrity of HSA and FSA spending by ensuring that funds are used appropriately.
Information Inventory Approval Standard (IIAS) Certification
Merchants that are selling products and not services must first be registered with the Special Interest Group for IIAS Standards (SIG-IS) in order for their products to be categorized as "Eligible," "Dual-Purpose," or "Ineligible." This registration process involves submitting detailed information about the products they offer and how they align with IRS regulations for eligible medical expenses.
Once registered, SIG-IS evaluates the products to ensure they meet the necessary criteria for processing HSA and FSA transactions. This step is crucial for merchants to clarify the eligibility status of their inventory and provide transparency to both cardholders and regulatory bodies.
Overview of IIAS Registration
- Definition: The Information Inventory Approval Standard (IIAS) Certification is a system designed to verify that a merchant's inventory is correctly categorized and that their point-of-sale (POS) systems can accurately identify eligible medical expenses.
- Purpose: IIAS Certification ensures that merchants’ systems can process HSA and FSA transactions in compliance with IRS regulations. This certification helps prevent misuse of tax-advantaged accounts and ensures proper processing of eligible expenses.
Who Needs IIAS Registration
- Retailers and Service Providers: Any business that sells health-related products and accepts HSA or FSA cards must be registered with SIG-IS. Healthcare providers such as doctors, dentists, and hospitals that exclusively offer healthcare services, and have a qualified MCC as described above can accept HSA/FSA cards without requiring any registration.
- Registration Process: Merchants seeking IIAS Certification and SIG-IS registration must undergo a review of their inventory and POS systems to ensure they can accurately process eligible transactions.
Benefits of IIAS Certification / SIG-IS Registration
- Compliance: Helps businesses comply with IRS regulations and avoid issues with HSA and FSA transactions.
- Efficiency: Streamlines the transaction process, reducing the risk of declined transactions and improving customer satisfaction.
- Credibility: Enhances the credibility of businesses by demonstrating a commitment to accurate processing and compliance.
Processing HSA and FSA cards involves understanding and implementing compliance standards such as compliant MCCs and the 90% rule. Obtaining IIAS Certification and SIG-IS Registration is essential for businesses to ensure accurate processing of health-related transactions and adherence to regulatory requirements.