Flexible Spending Account

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Flexible Spending Account

An employee benefit in which an employee may contribute so much of his/her pretax income into a special account that may be used for a broad range of purposes. One may use the funds in a flexible spending account for matters such as uncovered medical expenses, life insurance premiums, or other things. Some flexible spending accounts expect the account holder to pay for these things out-of-pocket and then receive reimbursement. Others have a debit card attached to the account that the account holder may use. Flexible spending accounts are not taxed.

Flexible spending account.

Some employers offer flexible spending accounts (FSAs), sometimes called cafeteria plans, as part of their employee benefits package.

You contribute a percentage of your pretax salary, up to the limit your plan allows, which you can use to pay for qualifying expenses.

Qualifying expenses include medical costs that aren't covered by your health insurance, childcare, care for your elderly or disabled dependents, and life insurance.

The amount you put into the plan is not reported to the IRS as income, which means your taxable income is reduced.

However, you have to estimate correctly the amount you'll spend during the year when you arrange to have amounts deducted from your paycheck. Once you decide on the amount you are going to contribute to an FSA for a year, you cannot change it unless you have a qualifying event, such as marriage or divorce.

If you don't spend all that you had withheld within the year -- or in some plans within the year plus a two-and-one-half month extension -- you forfeit any amount that's left in your account.

In some plans you pay for the qualifying expenses and are reimbursed when you file a claim. In other plans, you use a debit card linked to your account to pay expenses directly from the account.

Flexible Spending Account

A method of paying for benefits under a cafteria plan through salary reductions. Also see "Cafteria Plan."
References in periodicals archive ?
Tenders are invited for Health Savings Account (HSA), Limited Purpose FSA, And Flexible Spending Account Administrator
The money in Flexible Spending Accounts can be used to pay for out-of-pocket health costs a person, his/her spouse, and any eligible dependents including elderly parents or adult children up to age 26.
An elimination or cap on flexible spending accounts will force plan participants to pay higher taxes and incur higher health care costs at a time when many can least afford it.
Flexible spending accounts are use-or-lose plans, so saving amounts should be carefully thought out.
Authorization to carry over unused flexible spending account funds
According to the November 1995 issue of Flexible Benefits magazine, over three quarters of medium- to large-size employers offer flexible spending accounts to their employees.
SAN ANTONIO -- An upcoming $2,500 limit on the contribution amount for medical Flexible Spending Accounts likely won't impact many Americans, according to recent results from the "Getting Paid In America" survey.
The City is reviewing proposals for flexible spending account services.
Providers benefit from the card because they are able to collect payment at the time of service, while employees are more inclined to participate in flexible spending accounts, which historically haven't had high penetration because the accounts are cumbersome to manage and unused funds aren't rolled over to the next plan year, said Beth Bierbower, vice president of product innovation.
But, in contrast to its requirements for flexible spending accounts, the IRS did not object to the taxpayer's practice of making available to employees at a given point in the benefit year only a pro rata portion of the amount obtainable from the reimbursement program for the entire year.
Thus, the "use it or lose it" rule imposed on medical flexible spending accounts does not apply to HRAs.
Many companies and organizations allow employees to make pretax contributions to flexible spending accounts to pay for qualified dependent day care, such as preschool and private kindergarten.

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