What is a Flexible Spending Account (FSA)?

A Flexible Spending Account, or FSA, is an employee bank account set up through their organization’s benefits package which they can use for eligible medical, dependent care, and other related expenses.

How Do FSAs Work?

When an employer offers a Flexible Spending Account as an option, employees who opt into the FSA have a designated amount withheld from their paycheck on a pre-tax basis. Employers can contribute an additional amount to their employee’s FSA as well, but are not required to. Pre-tax withholdings and employer contributions are placed into the FSA account and may be used by the employee on “qualified expenses” such as: out-of-pocket medical, dental, vision and dependent care services. FSA funds can’t be used for just anything though, and the IRS has strict rules regulating what expenses the FSA funds can be used for. We recommend organizations speak with their health insurance broker for a complete list, or refer to this link for more information on FSAs directly from the IRS.

If the employer offers a debit card option, employees can pay for eligible expenses using a debit card at the point of sale. Otherwise, the employee may file a claim for reimbursement or request to have the FSA funds directly deposited into a personal bank account.

Why Should I Offer an FSA Option to My Employees?

Flexible Spending Accounts are a great option for employers who offer their employees a group health plan. Neither the employer nor employees pay taxes on any funds that they contribute to an FSA.  (Employers do have certain limits on how much they can contribute on an employee’s behalf).  If an organization chooses to, it can also provide employees the option to “stack” their FSA plans with HRAs and HSAs.

An additional benefit from FSA programs is accessibility, for both employer and employee. Some FSA programs enable HR personnel to access the FSA program for your entire organization through a single online portal. Employees can usually access their account and self-help tools via a mobile application, freeing up HR time from having to answer questions about individual employee accounts.

Wondering what Other Benefits Options you can Offer your Employees?

Health Savings Accounts (HSAs) are a great alternative or additional option when offering your employees an FSA. Read all about HSAs in “What is a Health Savings Account?”