A Flexible Spending Account (FSA) is a tax-favored program that allows employees to pay for qualified out-of-pocket health care and dependent care expenses with pre-tax dollars. This tax savings equates to an immediate discount on these expenses.
With an FSA, the employee will estimate medical expenses for the coming year. This amount will be divided by pay periods and subtracted from the employees paycheck. New rules for FSAs allow a grace period for unused money to be carried over for 2.5 months into the subsequent year.
Participation in the program is voluntary and election to participate is confined to one benefit period which is generally 1 year.
There are two types of Flexible Spending Accounts available: 1) A non-reimbursed medical expenditures account which allows the employee to pay for qualified medical expenses for themselves and dependents. The tax advantages of the program will help employees cover co-pays, co-insurance and deductibles tax free. The net result is that an employee may see and increase in real take home pay because the funds used to pay for an FSA are deducted prior to calculations of income taxes. 2) dependent care assistance spending account allows an employee to cover child care and/or elder care. The same rules apply and the money taken out of the paycheck for the FSA is tax-free. An employee must have a separate dependent care account to be able to cover child care or elder care.
Learn more about Flexible Benefit plans.
