Flexible Spending Account
Flexible spending account, sometimes called an FSA, is a special savings account that can be used to pay medical bills and other health-related expenses. Many companies that provide health insurance for employees also offer FSA’s. Employees can use FSA funds for most health expenses not paid for by insurance. Such expenses often include eyeglasses or elective (optional) surgery. Some companies also offer FSA’s that can be used for child care expenses.
No taxes are paid on the money in an FSA. An employee must decide in advance how much money to put into an FSA for each calendar year. The money is typically deducted in equal amounts from the person’s paychecks throughout the year. Any FSA money not spent by the end of the year is forfeited to the employee’s company.
Similar plans called medical savings accounts (MSA’s) also allow people to set aside money for medical costs. Such plans operate under different rules and regulations from those that govern FSA’s.