What Is a Flexible Spending Account?

A flexible spending account (FSA) is a tax-advantaged savings account that employees can use to pay for qualified medical expenses. Employers can offer healthcare flexible spending arrangements (FSA) plans as a benefit to their employees.

Employees fund their FSAs with pre-tax dollars, which are then used to reimburse eligible expenses. This can provide significant tax savings, as employees can reduce the amount of their taxable income by the amount they contribute to their FSAs.

Funds in an FSA can be used to pay for a variety of medical expenses, including:

Co-payments

Deductibles

Prescriptions

Dental care

Vision care

Hearing aids

Mileage for medical purposes

Long-term care premiums

However, there are some items that are not eligible for reimbursement from an FSA, such as:

Over-the-counter drugs (unless prescribed)

Cosmetic procedures

Medical expenses covered by insurance

Employees should carefully review the plan documents for their FSA to determine what expenses are eligible for reimbursement.

There are two types of FSAs: medical FSAs and dependent care FSAs. Medical FSAs can be used to pay for qualified medical expenses for the employee, their spouse, and their dependents. Dependent care FSAs can be used to pay for the care of a child or adult dependent while the employee is at work.

Both types of flexible spending accounts have contribution limits that are set by the IRS each year. For 2022, the medical FSA contribution limit is $3,050, while the dependent care FSA contribution limit is $2,800.

For more information or to get assistance in setting up an FSA, contact your HR department or financial advisor.

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