Flexible Spending Account (FSA)

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Definition of 'Flexible Spending Account (FSA)'

A flexible spending account (FSA) is a tax-advantaged account that allows employees to set aside money from their paychecks before taxes are taken out. The money in an FSA can be used to pay for qualified medical expenses, such as doctor's visits, prescription drugs, and co-pays.

There are two types of FSAs:

* **Health FSA (HFSA)**: This type of FSA can be used to pay for any qualified medical expense, including over-the-counter medications, dental care, and vision care.
* **Dependent Care FSA (DCFSA)**: This type of FSA can be used to pay for childcare expenses, such as daycare, preschool, and after-school programs.

The maximum amount that an employee can contribute to an FSA each year is $2,750 for an HFSA and $5,000 for a DCFSA. The contribution limit is the same for all employees, regardless of their income.

The money in an FSA is "use it or lose it." This means that if you don't use all of your FSA money in the year that you contribute it, you will lose it. However, there are some exceptions to this rule. For example, if you have a qualifying life event, such as a birth or adoption, you can carry over up to $500 from your FSA to the next year.

FSAs are a great way to save money on medical expenses. However, it is important to understand the rules and limitations before you contribute to an FSA.

Here are some additional things to keep in mind about FSAs:

* You must be enrolled in a high-deductible health plan (HDHP) to be eligible to contribute to an FSA.
* You can only use FSA money to pay for qualified medical expenses.
* You must submit receipts for your medical expenses to your employer in order to get reimbursed.
* FSAs are administered by your employer.

If you are considering contributing to an FSA, be sure to talk to your employer and your health insurance provider to make sure that it is the right option for you.

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