FSAs

Flexible Spending Account (FSA) is an employer-established, tax-advantaged account that allows employees to pay for eligible out-of-pocket healthcare or dependent care expenses with pre-tax dollars. Funds are contributed through salary reductions and reimbursed to the employee through a claims process or a debit card. The account is owned by the employee but administered by the employer or a plan administrator.

FSAs come in several forms. A Healthcare FSA covers eligible medical, dental, and vision expenses not paid by insurance. A Dependent Care FSA reimburses eligible dependent care costs, such as child or elder care. A Limited-Purpose FSA is usually restricted to dental and vision expenses and is often paired with a Health Savings Account (HSA).

Eligibility and enrollment: FSAs are offered by employers as part of benefits packages. Employees enroll during open enrollment or after a qualifying life event. Contributions are made on a pre-tax basis, reducing federal income and payroll taxes. Some employers may contribute funds as well.

Use rules and limits: Reimbursements are for IRS-defined eligible expenses. Plan administrators may require receipts for certain reimbursements. Most FSAs operate under a use-it-or-lose-it rule, meaning unspent funds by the plan year end are forfeited, though many plans offer a grace period or a limited carryover option.

Tax treatment and portability: FSA contributions are exempt from federal income and payroll taxes, and reimbursements are typically tax-free. FSAs are generally not portable between employers; funds do not automatically transfer if you change jobs. In contrast, Health Savings Accounts (HSAs) are portable and funds can roll over from year to year.