What are Flexible Spending Accounts (FSA)?
A Flexible Spending Acount (FSA) is a cost-saving feature that allows an individual to set aside pretax dollars into an account for a specific reason. Such accounts can be used for dependent care, work-related travel costs, and, most often, healthcare costs.
An employee can set aside earnings into an FSA to pay for anticipated expenses. At its discretion, an employer can offer various types of FSAs, including for adoption costs, insurance deductibles, or dental and vision costs that are not typically covered by insurance.
An employee can achieve significant savings by using an FSA since the dollars placed into the account are pretax dollars, meaning no payroll taxes are applied. The money placed into an FSA can be used only for the specific purpose identified for the account. In most cases, any money not spent during the plan period is forfeited by the employee, so it is important to anticipate expenses as accurately as possible and budget accordingly.