A “Flexible Spending Account (FSA)” is a tax-advantaged financial account that employees can use to pay for qualified medical expenses. FSAs are typically offered by employers as part of a benefits package. Employees can contribute a portion of their salary to the FSA on a pre-tax basis, which reduces their taxable income and helps them save on federal income and payroll taxes. The funds in an FSA can be used to cover a wide range of healthcare costs, including prescription medications, medical procedures, and certain over-the-counter items.
For example, if an employee contributes $2,000 to their FSA during the year, they can use these funds to pay for out-of-pocket expenses such as doctor visits or dental work. It’s important to note that FSA funds are generally subject to a “use-it-or-lose-it” rule, meaning any unspent funds at the end of the plan year may be forfeited, although some plans offer a grace period or allow a small amount to roll over.
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