What is Health care flexible spending account (FSA)?

Whether you're a beginner or an expert, you will find this Glossary useful.

Health care flexible spending account refers to a type of savings account which allows employees to set aside a portion of their pre-tax earnings to pay for out-of-pocket medical expenses, such as medical, vision or dental exams, for themselves and their dependents.

Health care flexible spending account definition (FSA)

Health care flexible spending account refers to a type of savings account which allows employees to set aside a portion of their pre-tax earnings to pay for out-of-pocket medical expenses, such as medical, vision or dental exams, for themselves and their dependents.

Benefits of health care flexible spending account

The biggest benefit of FSA is that it is offered as an option in the cafeteria plan and is exempted from payroll taxes. Other benefit is that the full amount employee sets aside for his calendar FSA contribution is available on the first day of coverage for expenses.

The biggest disadvantage of the FSA is that it does not have a “carry-over” option and any amount that remains unused by the end of the year is lost. This is known as the “use it or lose it” rule.



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