Overview: Many employers offer some type of flexible spending account (FSA) that employees can use to pay for eligible health and dependent care expenses. Health FSAs allow employees to use pre-tax dollars to pay for eligible health care-related expenses, such as health and dental insurance premiums, co-payments and deductibles. Dependent care FSAs allow employees to be reimbursed for eligible dependent care expenses, such as adult day care, nursery care, and preschool programs.
FSAs have strict rules relative to contribution amounts, the reimbursement of funds and funds remaining in the account. An employer should educate employees on the benefits of an FSA, what types of expenses are eligible to be applied and how to set up and use the account. Employees also need to be familiar with the limits on amounts that may be set aside each year and what will happen to funds that are not used.
Trends: As health care and dependent-related costs continue to rise, many employees are using FSAs as a way to plan for such expenses.
Author: Jessica Webb-Ayer, JD, Legal Editor
Updated to include forthcoming rules regarding HRA options.
Employers seeking to advise employees of the different forms of flexible spending accounts (FSAs) that they offer should consider including this model policy statement in their handbook.
Employment glossary definition of FSA (Flexible Spending Account).
Employment glossary definition of Dependent Care FSA.
Information, resources and tools on Flexible Spending Accounts.