Flexible Spending Account (FSA)

Meaning & Definition

The Flexible Spending Account (FSA) is a benefit that lets employees put some of their pre-tax salary into a tax-free account for medical, dental, and dependent care expenses. It reduces your taxable income; the funds are generally only eligible to be used by the end of the plan year unless your employer allows an additional grace period.

Importance of Flexible Spending Account (FSA)

• Provides employees with tax savings based upon earning income before taxes.
• Prepare for expenses associated with healthcare, dental care, and dependent care.
• Increases employees’ taxable wages.
• Assists in improving employee benefits and compensatory packages.
• Provides incentive for better financial and health care planning.
• Valuable resource for Global HR departments that administer benefits in multiple locations throughout the US.

Applicable Rules & Regulations 

• The IRS (Internal Revenue Service), United States of America, regulates this program.
• Section 125, Cafeteria Plans, of the IRS Code applies to this program.
• Contributions are subject to yearly limits established by the IRS.