All about Flexible Spending Accounts
A Flexible Spending Account, or FSA, is an employer-sponsored arrangement that provides employees with an opportunity to set aside a portion of the employees’ earnings on a pre-tax basis for the sole purpose of paying qualified medical expenses. An FSA can be used along with any traditional health insurance plan and has tax advantages.*
Some Facts about Flexible Spending Accounts
- Earnings deducted for FSA contributions are not subject to payroll taxes.*
- There are several types of Flexible Spending Accounts designed to cover different types of health care costs.
- Medical FSAs can be used to pay for deductibles, copayments and coinsurance specified in a health plan.
- Debit cards can be used with certain FSA plans; these are called Flexcards.
- The Internal Revenue Service (IRS) sets annual limits to how much you can fund a Flexible Spending Account.
Some Differences between an FSA and an HSA
- Both Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs), are used to pay for qualified medical expenses with tax-free dollars.*
- Unlike an HSA, a Flexible Spending Account is often used in conjunction with almost any traditional health insurance plan. To establish an account and make contributions, the HSA account holder must be enrolled in a high deductible health plan.
- FSAs and HSAs are also different in that FSAs are "pre-funded" by the employer, meaning the employee has almost immediate access to the full amount of funds that he or she would be contributing in small increments during the year.
* Please be reminded that Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs), including products under our BlueEdge product portfolio have tax and legal ramifications. Blue Cross and Blue Shield of Illinois does not provide legal or tax advice, and nothing herein should be construed as legal or tax advice. These materials, and any tax-related statements in them, are not intended or written to be used, and cannot be used or relied on, for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the promotion or marketing of the transaction(s) or matter(s) addressed by these materials. You should seek advice based on your particular circumstances from an independent tax advisor, regarding the tax consequences of specific health insurance plans or products.