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Flexible spending account

Health care in the United States
Government Health Programs

Private health coverage

Health care reform law

State level reform
Municipal health coverage


A flexible spending account (FSA), also known as a flexible spending arrangement, 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 earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee's pay into an FSA is not subject to payroll taxes, resulting in substantial payroll tax savings. Before the Patient Protection and Affordable Care Act, one significant disadvantage to using an FSA was that funds not used by the end of the plan year were forfeited to the employer, known as the "use it or lose it" rule. Under the terms of the Affordable Care Act, a plan may permit an employee to carry over up to $500 into the following year without losing the funds.

The most common type of flexible spending account, the medical expense FSA (also medical FSA or health FSA), 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 health care plan, medical FSAs are commonly offered with more traditional health plans as well. In addition, funds in an HSA are not lost when the plan year is over, unlike funds in an FSA. Paper forms or an FSA debit card, also known as a Flexcard, may be used to access the account funds.

Most cafeteria plans offer two major different flexible spending accounts focused on medical and dependent care expenses. A few cafeteria plans offer other types of FSAs, especially if the employer also offers an HSA. Participation in one type of FSA does not affect participation in another type of FSA, but funds cannot be transferred from one FSA to another.

The most common type of FSA is used to pay for medical and dental expenses not paid for by insurance, usually deductibles, copayments, and coinsurance for the employee's health plan. As of January 1, 2011, over-the-counter medications are allowed only when purchased with a doctor's prescription, except for insulin. Over-the-counter medical devices, such as bandages, crutches, and eyeglass repair kits, are allowable. Generally, allowable items are the same as those allowable for the medical tax deduction, as outlined in IRS publication 502.


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