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A flexible spending account (FSA), sometimes also known as a flexible spending arrangement, is a special account that employees can set aside to help save money on health care expenses that would otherwise be paid for out-of-pocket. The IRS allows employees to contribute up to $2,700 per year to their FSA, based on pre-tax dollars. If an employer offers matching FSA funds, they can contribute up to $500 more. Unused funds generally do not roll over, so it may behoove employees to use up as much as to pay for qualified expenses before the end of a health care plan year.
FSA eligible expenses include:
Medical expenses - Employees can use a health care FSA to pay for a variety of medical and dental expenses, including less-obvious items like vision exams, first-aid supplies, birth control, and insurance premiums.
Dependent care - FSA funds can be used to cover dependent care expenses such as preschool, day care, camps, and before- and after-school programs.
Medications - Flexible spending account funds can be applied to purchases of prescription medications, as well as over-the-counter medications prescribed by a doctor.
It should be noted that an FSA is similar to a health savings account (HSA). The key difference is that an HSA is available only to employees or self-employed workers with high-deductible health insurance policies and does not cover dependent care.