Flexible Spending Account (FSA)

Definition - What does Flexible Spending Account (FSA) mean?

A flexible spending account (FSA) is a type of healthcare spending account. An FSA is used in conjunction with an employer provided health care plan. Monies placed in a flexible spending account can be used to pay health care costs not covered by a person's health care plan. Funds placed in a FSA are not taxed, but may only be used to pay for qualified health care services.

A flexible spending account may also be called a flexible spending arrangement or a health care flexible spending account (HCFSA).

WorkplaceTesting explains Flexible Spending Account (FSA)

A flexible spending account (FSA) is a vehicle that allows employees to set aside funds to pay for health care services that may not be covered by their insurance plan. Co-payments and supplemental health care such as vision or dental care are examples of services that might qualify for FSA payments. Medications, including over the counter medications, are reimbursable through an FSA if they are prescribed by a doctor. Medical equipment is also reimbursable.

FSA funds may be used to pay for individual, spouse, or dependent health care costs. FSA funds cannot be used to pay health insurance, or other insurance, premiums. Consumers benefit from using an FSA account because they can fund this account with pre-tax income. Employers may also contribute to an employee's FSA.

Under current laws, contributions to an FSA are limited to $2,600 per individual. A minimum $100 contribution is required to maintain an FSA. Unlike health savings accounts, health care flexible spending account funds are intended to be used within a single plan year. Amounts not spent at the end of the plan year may either be used within a short grace period in the new year or carried over. However, any carry over into new plan years is limited to a maximum of $500.

Some FSA plans don't provide for either a grace period or carryover. Amounts remaining in these accounts at the end of a plan year are forfeited. The individual provisions for forfeiture of unused funds and the treatment of funds in an FSA when a person changes employers vary. Employees should carefully review the terms of their employer's FSA plan before deciding how to best use this program.

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