What is an FSA?
Hi, you may be wondering, what is an FSA? An Flexible Spending Account (FSA) is an employment based benefit that many employers offer. Employees can set aside a portion of their salary (pre-tax) that pays for qualified medical expenses. FSAs are called healthcare reimbursement accounts or cafeteria plans.
The main advantage of an FSA that it allows employees to pay for qualifying medical expenses with pre-tax dollars. This can save them money on their taxes. Due to FSA contributions being made with pre-tax dollars, withdrawals for qualified medical expenses are tax-free. FSA eligibility is an employee must be enrolled in an FSA-eligible health insurance plan. Annual FSA contribution limits are by employers and used money in an FSA account does not rolls over from year to year.
The two types of FSAs are the Health FSA and the Limited Purpose FSA. A Health FSA is pays for a wide range of qualified medical expenses like deductibles, copayments, prescriptions, and vision and dental care. A Limited Purpose FSA is usually used with a high-deductible health plan (HDHP) and only used to pay for dental and vision expenses.
A major drawback of an FSA is the "use it or lose it" rule. So, any used money at the end of the plan year is forfeited. This can cause a disadvantage to employees when there are unanticipated high healthcare expenses or there is unused money in the account. Also, an FSA cannot be used to pay for monthly insurance premiums.
So, an Flexible Spending Account (FSA) is an employment based benefit that many employers offer. Employees can set aside a portion of their salary (pre-tax) that pays for qualified medical expenses. FSAs do have annual contribution limits. FSAs provide tax savings when employees pay for qualifying medical expenses using pre-tax dollars. The two types of FSAs are the Health FSA and the Limited Purpose FSA. But, FSAs have a "use it or lose it" rule and can not be used to pay for monthly insurance premiums.
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