A FSA (Flexible Spending Account) is an account set aside to help you pay for qualified health care services and eligible medical expenses. You can sign up for a FSA without a health plan. You contribute the money toward it, and your employer can if they chose, but your employer owns the account.
Your employer will take money out of your paycheck, pre-taxed, and deposit it into the account. You don’t pay federal, state or Social Security on this money. You also don’t pay federal income taxes on money that is reimbursed to you. The IRS sets a limit on how much you can contribute each year. This amount can be found in your health plan documents. Your employer can decide the annual limit, but it still can’t exceed the IRS limit.
If you don’t use it all in a calendar year, your employer can allow up to $500 to carry over. You cannot cash out this account. If you don’t use it and leave your employment, the account stays with your employer.
Qualified Medical Expense: a health care service, treatment or item that the IRS says can be purchased without having to pay taxes.
Eligible Medical Expense: a health care service, treatment or item that the IRS says can be covered or reimbursed (paid back) by a benefit plan.
Next week: What is a HRA?