Definition: A Flexible Spending Account, actually originally referred to as Flexible Spending Arrangements in IRS Publication 969, are accounts set up by an employer to hold pre-tax dollars set aside by employees for their health care and medical expenses.
The employee determines how much they will spend on uninsured health care expenses for the upcoming year then designates this amount to be withheld before taxes from the paycheck. The amount withheld is placed in a Flexible Spending Account, and the employee submits receipts and insurance statements throughout the year to be reimbursed.
Flexible Spending Accounts decrease earnings, thus decrease the income tax burden. No amount may be left in the Flexible Spending Account by the end of the year, or it will be lost.
An FSA is not the same as an HSA or Healthcare Savings Account.
Also Known As: Flexible Spending Arrangement
Alternate Spellings: FSA
Examples: I have $50 per week deducted from my paycheck, which rolls into my employer's Flexible Spending Account. When I pay a medical deductible or other expenses not covered by medical insurance, I submit the receipts to the Flexible Spending administrator for reimbursement.
