How Flexible Savings Accounts Work

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Flexible savings account (FSA) referred to by the IRS publication 969 as Flexible Spending Arrangements, is a program that set aside monies to reimburse employees for their medical expenses. These funds are established voluntarily by an employer to keep as pre-tax dollar for their employees medical and health related expenses. Pre-tax money benefits the employee because it decreases his tax liability. There are distinct problems if you terminate your employment, but there are strategies to help you eliminate some of the negative problems. How FSA Works The employee decides the amount he wants to spend for his upcoming uninsured health related expenses. These covered expenses are usually insurance co-pays, coinsurance, deductibles, and non covered expenses. An example of non covered expenses is massage therapy. It is usually not a covered medical expense without an authorization from your physician. The employee designates the amount he wants withheld for tax purpose, from his paycheck. The allotted amount is then placed in a Flexible Savings Account by the employer. The employ...

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