Flexible spending account -Definitions and how it works

Call it a flexible spending account or a flexible spending arrangement; you won’t be wrong.

A few types of savings accounts are available for individuals to put money aside. Though the purpose of savings and the way the savings account is run may vary from each other. However, they all have the savings component and the possibility of getting it from an employer.

Also, depending on the type of savings account, it may be taxed or remain tax-free. The flexible savings account belongs to the category of savings that are tax-advantaged with other benefits. As we’ve explained below, this type of savings account has more to it than just being tax-advantaged.

What is a flexible spending account?

The flexible spending account (FSA) is a savings account that employers offer their workers. It allows employees to access it anytime for their medical or dental bills. This account permits the owner to save up a part of their salary when health expenses arise.

Also, employers do not only offer these accounts; they may go ahead to contribute to the savings. No law binds them to contribute to this account; only employers who find it okay contribute to the employee’s FSA. Part of the salary that goes into the account is not subject to payroll taxes, and the money you withdraw from the account for your medical bills will not be taxed.

There are two types of this flexible savings accounts; the medical care flexible spending account and the dependent care flexible spending account.

How does the flexible spending account work?

This is an account that primarily comes from an employer. When it is set up and ready to run, the funds the employee and the employer send into the account come from the earnings. The savings funds will be first deducted before the income becomes taxed.

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However, the amount this account can maintain in a year is limited by the Internal Revenue Service. So, you can not save unlimited with a flexible spending account. In recent times, the average amount that the flexible spending account can hold is $2,850. 

Furthermore, the account always has a specific period when the funds in the account must be used up, or else it goes back to the employer and can not be re-accessed by the owner. That notwithstanding, employers now give their employees a pardon window of about two to three months to use the funds.

Dependent care flexible spending account

The flexible sending account comes in two types; the medical care and the dependent care flexible spending account. This type goes into the welfare of an employee’s child instead of the employee’s. A dependent care flexible spending account allows an employee who is a parent or guardian to save tax-free funds for the medical care of the qualified dependent.

Sometimes, it goes beyond the children and benefits any other dependent adult living in the same home with the employee. It must be certified that this adult is dependent, like an elderly parent. However, the primary purpose is for employees to care for their young children, like daycare expenses.

More on the flexible spending account

Some employees do not get to use up the funds in the account at the end of the year plan. In such cases, the employee ceases to own the funds again, but the employer may offer some favorable options.

Firstly, the employer may permit you to roll over up to $500 from the account into the following year’s plan or give you an extra two or three months to use up the funds. So, as an employee with leftover funds by the end of the year, you may be lucky to get one of these options, not both.

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Again, if an employer so wishes, they may offer other various benefits alongside the FSA. So, all will be incorporated inside the employee benefits package.

In contrast, some savings plans can be accessed by self-employed individuals. Since they do not receive salaries and do not have employers to set up the account on their behalves, they use the services of brokers to set up the arrangements for them, but; they have to fund it by themselves. However, the flexible spending account is off-limits to the self-employed.

How to get the funds from a flexible spending account

The money saved in the FSA is only used for medical expenses. When you spend for your health, the savings will be used to reimburse you for your health expenditures. 

Now, at the inception of the savings account, you have the right to say how much you can contribute before your employer add their part. So, during reimbursement, you will get the maximum contribution amount; it does not matter the total amount balanced in the account; you only receive the total amount you promised to contribute in a year plan.

Also, before you receive the money, the law demands that you present a written statement from an eligible person stating you spent money on a health issue. Not only that, you are expected to show a testament that you did not receive any reimbursement from another savings account.

Still, there is another way to escape these written statements. Employers often offer their employees a debit or credit card with this account. If you meet the requirements, you can withdraw from the account directly with the cards without providing more statements or information.

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Medical expenses from these people can be reimbursed

Health expenses incurred by your dependents are reimbursed. These people include partners of married employees, children of employees under 27 years, and dependents claimed under your tax return.

When can’t you receive reimbursement?

Even when the flexible spending accounts pay the owners for medical expenses, there are some medical expenses that FSAs can not reimburse. The money used for long-term care won’t be paid back; the same for any health insurance premium you paid.

Also, if you pay for another health care plan, the FSA will not pay back the expenses or the money you spent in any of these ways.


Other types of accounts that are tax-advantaged and used for savings include a Health Savings Account (HSA). The HSA is also gotten from an employer as a benefit for working in the organization. Having an FSA can not stop an individual from buying other packages like life insurance or other insurance policies.


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