An FSA, or Flexible Spending Account, is an employer-sponsored plan that allows you to set aside dollars from your paycheck on a non-taxed basis. FSA deferrals are exempt from federal taxes, Social Security (FICA) taxes and, in most cases, state income taxes.
You can set aside FSA dollars for two separate purposes:
- Medical reimbursement deferrals can be used to reimburse eligible medical expenses incurred by you and your eligible dependents.
- Dependent care deferrals can be used to reimburse eligible child care expenses for children under age 13.
The money in your FSA can be used for eligible health and/or dependent care expenses that are incurred during the plan year.