What Is An FSA?

Flexible Spending Account (FSA) plans are employer-sponsored accounts that are available to employees to set aside portions of their regular pay for medical, dental and/or vision care expenses. These are tax-advantaged savings accounts, allowing employees to pay for qualified expenses with pretax dollars. This can make a significant difference in the total cost of the employee’s health care, saving them money and easing the financial burden of necessary medical treatments.

How Does An FSA Work?

Each year, an employee is allowed to decide how much money to contribute to an FSA. This money is then taken out of the employee’s paychecks on a monthly basis and deposited into the account. This can be done through payroll deductions and the amounts are determined when the employee enrolls in the FSA.

The money saved in the FSA is earmarked for medical, dental, and/or vision expenses or products. These costs are then covered by the money saved in the FSA. While the money is being saved throughout the year, the employee is not able to withdraw the money, making it prime for medical costs as needed. The money is only available to the employee to pay for qualified medical expenses.

Who Is Eligible for An FSA?

Any employee who enrolls in an employer’s health benefits plan is eligible to have an FSA, so long as the plan itself is eligible. Employers can decide which plans are eligible. Keep in mind that an FSA account must be established and money must be contributed by April 15th each year in order to be able use pre-tax dollars in the current year.

Benefits of an FSA

Having an FSA is a great way to save money on medical expenses. The amount saved is based on the marginal tax rate. In many cases, the employee’s marginal tax rate would be 25%, but if they elect to pay for eligible expenses with pre-tax money from their FSA account, they can save 25% on those costs.

FSA also helps spread the cost of medical expenses out over the year. The contributions are made on a monthly basis, so the employee will have money available for medical expenses throughout the year, rather than having to pay for them all at once.

Finally, FSA plans are incredibly flexible. Employees can change the amount of their contributions at any time and the funds are available for use nearly immediately upon being contributed. This provides the employee with a great deal of control over their own medical expenses and allows them to be prepared for any medical costs that may arise.