What are Flexible Spending Accounts (FSA)?
Section 125 of the Internal Revenue Code authorizes the establishment of cafeteria plans. These plans allow an employee to “purchase” certain nontaxable benefits in lieu of receiving taxable cash compensation. A certain type of cafeteria plan called a Flexible Spending Account enables employees to set aside money on a pre-tax basis to reimburse qualified medical and dependent day care costs. Who can benefit from Flexible Spending Accounts The employer and employees can both benefit from a Flexible Spending Account. The Flexible Spending Account allows the employer to offer a new benefit for their employees without a large premium or plan contribution required. Employees have increased take home pay because pre-tax dollars are taken for the contribution, which in turn reduces their tax bracket and income taxes. Employers get a lower payroll tax as well. Employees can get cheaper dependent care because it is not taxed while using a Flexible Spending Account. The Flexible Spending Account
