Glossary

Small Business Glossary and Definitions

What is a Health Care Flexible Spending Account (FSA)?

Healthcare Flexible Spending Account (FSA) is a cost-savings feature for employee healthcare costs. Individual employees may set aside up to $2,550 per year in an FSA to be used for qualifying medical expenses such as insurance co-payments and deductibles. The dollars set aside are pre-tax dollars, which can result in substantial payroll tax savings for the employee.

Many FSAs have “use it or lose it” rules, meaning any money set aside in the account at the end of a health plan year is forfeited by the employee. As a result, it is important to budget and plan foreseeable expenses as accurately as possible in order to enjoy the cost-savings benefit of the FSA. An employer may offer, but is not required to offer, the ability either to roll-over up to $500 of an FSA account into the following health plan year or to extend a grace period of up to two and one-half months after the end of the health plan year to use the funds, but not both.