A flexible spending account (FSA) is an employer-sponsored savings account that is funded by an employee’s pretax contributions for qualified medical expenses.
What is a flexible spending account?
As part of an employee’s benefits package, some employers may offer FSAs. Employee contributions aren’t taxed and qualified withdrawals aren’t taxed. As of 2021, the contribution limit for FSAs is $2,750. If the employee has a spouse, the spouse can contribute an additional $2,750. Employees with children are eligible for dependent-care FSAs, which have a $5,000 contribution limit.
Depending on the FSA plan provider, FSA funds must be used within one year's time. Some organizations have a two-and-a-half-month grace period at the end of the year, and other companies allow some money to roll into the next year.