Flexible Spending Account (FSA) Administration
Flexible Spending Accounts are employer-sponsored benefits that enable employees to pay for eligible medical expenses on a pre-tax basis. Employees take a pre-tax payroll deduction and the amount is deposited into an FSA, which reduces taxable income. Any unused balance in an employee's FSA account reverts to the employer at the end of each plan year.
The most common type of FSA is used to pay for medical expenses not paid for by insurance. This usually means deductibles, copayments, and coinsurance for the employee's health plan, but may also include expenses not covered by the health plan, such as dental and vision expenses and over-the-counter drugs. A medical FSA cannot pay for health insurance premiums, cosmetic items, cosmetic surgery or items that improve "general health". All items must be intended to treat or prevent a specific medical condition; this can be as significant as diabetes or pregnancy, or as trivial as skin cuts. Generally, allowable items are the same as those allowable for the medical tax deduction. Employers have the option to reimburse claims or to issue a debit card that employees can use to pay for expenses directly. FSAs may also be used to pay for dependent (child or adult) care, though the plan design is more complex.