Flexible Spending Account

Updated: 29 February 2024

What Does Flexible Spending Account Mean?

A flexible spending account (FSA) is a scheme in which part of an employee’s income is set aside by the employer for the employee to spend on medicine and other health-related expenses, following guidelines set by the Internal Revenue Service. This program exempts some health expenditures from taxation.

Insuranceopedia Explains Flexible Spending Account

To acquire a flexible spending account, an employee must first enroll in the Federal Flexible Spending Account Program or their employer must have already adopted the program. This account is meant to result in savings on medications and other health expenses by avoiding the taxes on those products and services.

The employee must spend the money on a schedule, however, and they are limited to $500 for the schedule or plan year.

There are also some exclusions on the spending. Notably, funds from the account cannot be used to pay insurance premiums.

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