FSA stands for Flexible Spending Account, which is a type of savings account that allows individuals to set aside pre-tax dollars to pay for qualified medical expenses. The most common type of FSA is used to pay for medical and dental expenses not paid for by insurance, usually deductibles, copayments, and coinsurance for the employees health plan. FSAs can also be established to pay for certain expenses to care for dependents while the legal guardian is at work, such as child care for children under the age of 13 and day care for an individual of any age who is incapable of self-care, lives with the taxpayer for more than one-half of the tax year, and is either the taxpayers spouse or dependent.
FSAs are funded through regular payroll deductions on a pre-tax basis, and the employee decides how much to put in, up to a limit set by the employer. The funds in an FSA can be used to pay for a wide range of qualified medical expenses, including prescription medicines, doctor’s co-payments and specialist visits, prescription eyeglasses or contact lenses, over-the-counter medicines, menstrual care products, and first aid supplies.
It is important to note that any money left in an FSA at the end of the year may be forfeited, depending on the employers policy. However, some employers offer a "grace period" of up to 2 ½ extra months to spend the leftover money, or allow employees to carry over up to $500 to spend the next plan year.
Overall, FSAs can be a useful tool for individuals to save money on qualified medical expenses and lower their taxes. It is recommended to check with your employer for details about your company’s FSA, including how to sign up and what expenses are covered.
