Short answer: Usually not. Only C-corporation owners treated as W-2 employees can participate in an FSA; sole proprietors, partners, and more-than-2% S-corporation shareholders cannot. Just like with other Section 125 cafeteria plan benefits, eligibility to participate in a Flexible Spending Account depends on how the IRS classifies the business owner.
Owners of C-corporations are considered employees for tax purposes. As a result, they may participate in an FSA, make pre-tax salary reduction contributions, and receive reimbursements in the same manner as other W-2 employees.
In contrast, sole proprietors, partners, and more-than-2% S-corporation shareholders are treated as self-employed individuals under IRS rules. Because they are not considered employees, they are not eligible to participate in cafeteria plans, including FSAs.
Although these owners generally cannot participate themselves, they may still sponsor an FSA for their W-2 employees, provided the plan otherwise meets Section 125 requirements.
Sources
Internal Revenue Code, Section 125(d) (a cafeteria plan is a written plan under which all participants are employees): .
law.cornell.edu/uscode/text/26/125Internal Revenue Code, Section 1372 (for fringe-benefit purposes a more-than-2% S-corporation shareholder is treated as a partner, i.e. self-employed and not an employee): .
law.cornell.edu/uscode/text/26/1372