A flexible spending account (FSA) is an employee benefit program that allows individuals to set aside a portion of their pre-tax salary to cover qualified expenses. FSAs are typically offered by employers as part of their employee benefits package and are designed to help employees save money on eligible healthcare and dependent care expenses. The contributions made to an FSA are deducted from the employee's salary before taxes, which can result in significant tax savings.
An employee enrolls in a flexible spending account and contributes a portion of their salary to cover eligible healthcare expenses such as medical deductibles, prescription medications, and vision care. Throughout the year, the employee submits receipts for qualified expenses and is reimbursed from their FSA funds. By utilizing an FSA, the employee reduces their taxable income and saves money on out-of-pocket healthcare costs.