A flexible spending arrangement (FSA) or Flexible Spending Account, as they are commonly called, is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan. The earnings set aside are usually used for medical expenses, but they can also be used for dependent care or other expenses. Money deducted from an employee’s pay and put into an FSA is not subject to payroll taxes, resulting in a substantial payroll tax savings. However, any funds left at the end of the plan year are lost to the employee.
The most common Flexible Spending Account (FSA) is known as a medical expense FSA. It is also called a medical FSA or health FSA, and it is similar to a health savings account (HSA) or a health reimbursement account (HRA). However, while HSAs and HRAs are almost exclusively used as components of a consumer-driven healthcare plan, medical FSAs are commonly offered with more traditional health plans as well. An FSA may use paper claim forms or an FSA debit card which is also known as a Flexcard.
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