Flexible Spending Account
A Flexible Spending Account is a method for employees to put aside pre-tax dollars to pay for their out-of-pocket health and/or dependent care costs.
Flexible benefit plans are structured in a variety of ways, ranging from simple “premium conversion” programs, to full flex (or “cafeteria”) plans, which offer employees a “menu” of benefits from which to choose.
In most flex plans, an eligible employee can choose to receive all compensation in cash (instead of benefits) to direct a portion of his/her salary to purchase additional benefits offered or to a Flexible Spending Account. The employee‘s contributions are payroll deducted and deposited to an account maintained by the employer. When the employee incurs an expense for one of the qualifying benefits, the employer reimburses the employee from the money deposited in his/her individual account. These reimbursements are not subject to federal income tax, Social Security tax and most state and local taxes; therefore providing employees with tax-free benefits while providing the employer with a means to reduce employment expenses.