Flexible spending account is an insurance plan that allows the employee to store a percentage of his paycheck in the account to cover expenses that are not covered by the standard health insurance plan. The funds that are saved in the flexible spending account are exempted fro taxes including federal state and local taxes. As a result, you will pay lower tax and save money. The funds in the flexible spending account must be spent within the given time otherwise they will be forfeited. You should plan the medical expenses properly so that you know how much you need to save in the flexible spending account.
The Internal Revenue Code 125 allows the employers to provide several insurance benefit packages for the employees. Some of the benefits that can be included in the flexible spending account package include group term life insurance, 401k compensation plan, accident insurance, and etc.
Flexible spending account was introduced to the United States since 1970s. Despite that, no many companies want to provide FSA plan to the employees because of the high administrative cost and difficulty to implement the plan. Employees don’t want to invest the FSA account because there is a risk of losing the money if they don’t use it. The development of the flexible spending account is also obstructed by the introduction of health maintenance organization (HMO) and preferred provider organization (PPO) health insurance plans.
Flexible spending account can be used for any medical cost that is not already covered by the health care plan including dental, rehabilitation treatment, lab test and co-payments for clinic visits.
