What is a Flexible Spending Account (FSA)?

Flexible Spending Accounts (FSAs) are savings accounts that allow employees to save money before taxes from each paycheck for approved expenses such as healthcare and dependent care.

FSA funds can save employees a lot of money because they are not subject to federal income tax or Social Security and Medicare taxes. However, FSA funds are only available within the plan’s year; otherwise, they will be forfeited.

How Does a Flexible Spending Account Work?

A Flexible Spending Account (FSA) is an account that employees can use to allocate a certain amount of their pretax pay for Healthcare or Dependent Care expenses. Employees who contribute to their FSA do so before taxes are deducted, lowering their taxable income and saving them money on taxes.

You fund an FSA with your salary and use it to pay for eligible expenses during the plan year. This is usually a calendar year. Many medical expenses are eligible for reimbursement through FSAs, HRAs, or HSAs. These include deductibles and copays, prescription drugs, dental, vision, and other treatments and procedures. Dependent care FSAs cover eligible elder or child care expenses, such as daycare and after-school care.

What’s Eligible for a Flexible Spending Account?

The expenses eligible for a Flexible Spending Account vary depending on the plan. However, popular expenses include those considered “medically essential” or to support a dependent.

The following are examples of expenses that FSAs can pay with pre-tax dollars.

Healthcare FSA:

Medical, dental, and vision insurance copayments and deductibles
Prescription drugs
Medical supplies and equipment
OTC medicines that require a prescription from a physician
Various medical procedures and treatments, including acupuncture and chiropractic care