A Flexible Spending Account (FSA) is an employer-sponsored benefit that lets employees set aside pre-tax dollars to pay for eligible out-of-pocket healthcare expenses. This includes things like copays, prescriptions, medical supplies, and dental or vision costs not covered by insurance.
FSAs help lower your taxable income, which can save money on federal, state, and payroll taxes. Employers can also contribute to an employee’s FSA, though they’re not required to.
One key thing to know: FSAs are “use it or lose it” accounts. Any funds you don’t use by the end of the plan year—plus any applicable grace period or rollover—are forfeited.
FSAs are different from Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs), and the rules around each type of account vary.