Flexible spending account

Flexible Spending Account (FSA)

Introduction

A Flexible Spending Account (FSA), also known as a flexible spending arrangement in the United States, is a tax-advantaged financial account. FSAs allow employees to save pre-tax dollars for eligible healthcare and dependent care expenses, resulting in payroll tax savings.

Overview

FSAs are established through an employer-sponsored benefits plan. Employees can allocate a portion of their earnings into the account before taxes are deducted. These funds can then be used throughout the year for qualified medical expenses, childcare costs, and other eligible expenses.

Types of FSAs

Healthcare FSA

Used for eligible medical, dental, and vision care expenses not covered by insurance.

Dependent Care FSA

Allocated for expenses related to the care of dependents, such as childcare or eldercare.

Tax Advantages and Contributions

Contributions to an FSA are made with pre-tax dollars, reducing the employee's taxable income. The annual contribution limit is set by the Internal Revenue Service (IRS) and is subject to change.

The "Use It or Lose It" Rule

One significant limitation of FSAs is the "use it or lose it" rule. Funds not used by the end of the plan year are forfeited to the employer. However, some plans offer grace periods or allow employees to carry over a portion of the funds.

Affordable Care Act and FSA

Under the terms of the Affordable Care Act, some FSA plans may permit employees to carry over up to $550 into the following year. This carryover provision, however, is not mandatory and varies by plan.

Managing an FSA

Proper management of an FSA requires understanding eligible expenses, tracking contributions and expenditures, and planning for potential changes in healthcare needs.

See Also

• Health Insurance in the United States
• Taxation in the United States
• Employee Benefits

References

1. [Link to IRS guidelines on FSAs] 2. [Link to an article about FSAs under the Affordable Care Act]

External Links

• IRS - Health Flexible Spending Arrangements (FSAs)
• Healthcare.gov - Flexible Spending Account (FSA) Glossary Entry

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