A flexible spending account is an employee benefit program designed to take advantage of Section 125 of the Internal Revenue Code. A cafeteria plan allows employees to pay certain qualified expenses (such as health insurance premiums) on a pre-tax basis reducing their total taxable income and increasing their spendable/take-home income. Funds set aside in FSA accounts are not subject to Federal, State, or Social Security taxes. On average, employees save from $.25 to $.49 for EVERY dollar they contribute to the FSA.

Premium Only Plans (POP)

Employers may deduct the employee’s portion of the company-sponsored insurance premium directly from the employee’s paycheck before taxes are deducted.  

Flexible Spending Plans (FSA)

Employees may set aside in a Flexible Spending Account (FSA) a pre-determined amount of money per plan year on a pre-tax basis. The employee can use the funds in the FSA to pay for eligible medical or dependent care.

Benefits to the Employer

Employers may add a FSA Plan as an important part of their overall benefit package. Because an FSA Plan offers a tax-advantage, employers experience tax savings from reduced FICA, FUTA, SUTA, and Workers’ Compensation taxes on participating employees. These tax savings reduce or eliminate the costs associated with offering the Plan. Meanwhile, employee satisfaction is greater because participating employees experience a “raise” at no additional cost to the employer.

Benefits to the Employee

An employee who participates in the FSA must place a certain dollar amount into the FSA each year. This “election” amount is automatically deducted from the employee’s check (for that amount divided by the number of payroll periods). For example, an employee is paid 24 times a year, and elects to put $480.00 in the FSA. Thus, $20.00 is deducted pre-tax from each paycheck and is held in an account (by the Plan administrator) to be reimbursed upon request.

Comparing HSAs, HRAs, and FSAs

Question	HSA	HRA	FSA
Do the funds belong to the employee?	YES	NO	YES
Can the money be invested and the employees earn interest?	YES	NO	NO
Can the employees use the funds for things other than medical expenses?	YES	NO	NO
Can the employee take the money with them if they switch employers?	YES	NO	NO
Do the funds rollover year-to-year?	YES	Generally, NO	NO
Who can contribute to the account?	Employers and/or Individuals	Employers	Employee

HRAs are employer owned. FSAs have the "use it or lose it clause". Money has to be spent by the end of the calendar year or it is forfeited to your employer.