Education What is a Healthcare Flexible Spending Account (FSA)?

A Healthcare Flexible Spending Account (FSA) is an employer-sponsored benefit account that allows you to set aside pre-tax funds to help pay for eligible healthcare expenses.

An FSA is a great spending vehicle to help pay for healthcare costs not covered by your health plan.

An FSA is an employer-sponsored benefit account that allows you to set aside pre-tax funds to help pay for eligible healthcare expenses. An FSA is a great spending vehicle to help pay for healthcare costs not covered by your health plan.

Depending on how your FSA plan is set up, you may be able to carry over up to $500 of unused funds to the following plan year. In October 2013, the US Department of Treasury modified its long-standing FSA "use it or lose it" rule, allowing FSA plan participants to rollover up to $500 of unused FSA funds, rather than the traditional funds forfeiture. Simply put, FSAs are now more powerful than ever!

  • You can contribute up the maximum as allowed by the IRS annually to your FSA.
  • Your annual election gets deducted evenly from your paychecks and put in your FSA – on a tax-free basis.
  • Your annual election is available on day 1 of the plan year. You can use FSA funds to pay for eligible healthcare expenses.
  • Depending on how your FSA plan is set up, if you don’t exhaust your FSA funds by year’s end, you may be able rollover up to $500 into next year’s FSA plan.
  • Reduce taxable income – Contributions lower your reported annual income, resulting in lower taxable wages
  • Save on healthcare expenses – Using pre-tax funds to pay out-of-pocket healthcare expenses can save you hundreds
  • Offset rising healthcare costs and individual financial responsibilities

The bottom line: FSAs save you money. The contributions you make to an FSA are deducted from your pay check on a pre-tax basis – before federal income, social security, and most state taxes. The end result of your FSA contributions is a lower taxable income, and a tax advantaged vehicle to pay for out-of-pocket healthcare expenses. There's really no reason to forgo an FSA. Everyone has some type of out-of-pocket healthcare expenditures – thus, an opportunity to save!



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