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What is a flexible spending account?

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Quick Answer

A flexible spending account, which is sometimes referred to by its acronym, FSA, is a type of employee benefit program that lets employees set money aside before taxes are taken out to pay for health care and other expenses. FSA accounts can be used for paying everything from copayments to drugs to deductibles and other healthcare costs, according to FSA FEDS. Employees are limited to deposits of $2,500 per year into FSAs.

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What is a flexible spending account?
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Full Answer

FSAs are accounts that are set up without the need for paying taxes on the money deposited in them. Deposits to an FSA are taken out of an employee's pay prior to taxes being deducted, so in some cases, having an FSA can even take the employee into a lower tax bracket.

There are several types of accounts, including the healthcare FSA, limited expense healthcare FSA and dependent care FSA. The healthcare FSA pays for eligible expenses for healthcare services that are not otherwise covered by insurance. It will also pay for things such as over-the-counter medications. The limited expense healthcare FSA is used for dental and vision expenses only, while the dependent care FSA can pay for the costs of adult or child daycare that are necessary for the account holder or the spouse of the account holder to work or to go to school.

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