How does a flexible spending account work?
Who is this for?
If you’re interested in flexible spending accounts, this information can help you understand more about how they work.
A flexible spending account, or FSA, is a way for you to set aside money for qualified medical, dental or vision expenses or dependent care.
You fund an FSA through pre-tax deductions from your paycheck. The total amount you choose to deposit is taken out of your paycheck over time, but you get the full amount for use at the beginning of the year. Your employer owns the account, but you are the one who funds it and decides how to spend the money. Only you and your employer can contribute to the FSA.
Flexible spending accounts also help you save on taxes. The amount you put into the account is deducted from your pre-tax income, which could put you in a lower tax bracket. And the money you put in is not taxed, either.
There are three kinds of FSAs:
Health care FSA: Pays for qualified medical expenses, including insurance copays and deductibles.
Dependent care FSA: Pays for the care of a dependent child or adult so that you can work.
Limited-purpose FSA: Pairs with a health savings account to help you pay for dental and vision expenses.