Flexible Spending Account (FSA)

November 19, 2002 at 9:56 PM CST - Updated June 16 at 1:25 AM



Flexible Spending Account (FSA)
This plan allows employees to use pre-tax dollars to pay dependent care expenses and medical bills not covered by their insurance. Usually offered in conjunction with a POP, the FSA is a budgeting tool that can help take care of out-of-pocket expenses such as day care, dental and optical care deductibles, co-pays, and prescription drugs. Like a POP, an FSA helps pay for itself by increasing employee take-home pay while decreasing employer payroll taxes. Here's how it works:

  • An employee decides how much of their salary should be set aside before taxes are calculated.
  • This amount is automatically deducted from their paycheck every pay period, just like any other payroll deduction, and is deposited into their FSA account.
  • The employees would pay their out-of-pocket expenses up-front, then submit a claim and documentation and a reimbursement is made from their own account.

Out-of-pocket expenses include:

· Eyeglasses and contact lenses

· Orthodontia

· Medical insurance deductibles

· Chiropractic services

· Prescriptions

· Dental treatments

· Co-payments

· X-ray and laboratory services

Dependent care expenses include:
· Care for a child under the age of 13
· Care for a disabled spouse or dependent incapable of caring for him/herself
· Household-related services (i.e., visiting nurse)

The flexibility of an FSA plan makes it the best option for small to medium sized businesses.

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