Flexible Spending Account

What Does Flexible Spending Account Mean?

A Flexible Spending Account (FSA) is a program where an employer sets aside a portion of an employee’s income to be used for eligible medical and health-related expenses, as defined by the Internal Revenue Service (IRS). This arrangement allows certain health expenses to be exempt from taxation.

Insuranceopedia Explains Flexible Spending Account

To obtain a Flexible Spending Account (FSA), an employee must either enroll in the Federal Flexible Spending Account Program or participate in a program adopted by their employer. The account is designed to help employees save on medications and other health expenses by exempting these costs from taxes. An FSA is one of the more practical ways to lower your overall health insurance costs, because the money goes in pre-tax and reduces what you actually pay for care during the year.

However, the funds must be spent according to a specific schedule, and employees are limited to a maximum of $500 for the plan year.

There are also certain exclusions on spending; notably, funds from the account cannot be used to pay insurance premiums. FSA dollars can still go toward out-of-pocket costs like deductibles and copays, which is where most people end up using the money.