• A Flexible Savings Account is a cafeteria plan authorized under Section 125 of the IRS Code. F.S.A.s are also created to reimburse for qualified medical expenses. However, interest does not accrue in an F.S.A. Also, only those whose employer offers an F.S.A. are eligible for this plan, and there does not need to be a corresponding health plan to qualify for an F.S.A.
• Funding a F.S.A. can be done either by an individual or an employer. However, there are no limits to the contributions for an F.S.A. Any leftover funds may not carry over to the next year. F.S.A. funds are not portable and withdrawals for non-medical expenses are not permitted. A "premium-only" F.S.A. may be set up to pay for a portion of the employees' health insurance premium. This is done typically under a salary reduction arrangement.
• Money deducted from an employee's pay into an FSA is not subject to payroll taxes, resulting in a substantial payroll tax savings.
• An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses.
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