Flexible Spending Account (FSA)

HR Glossary for HR Professionals

Glossary of the most common HR terms and acronyms to assist professionals navigating the ever-growing and ever-changing world of HR terminology.

Flexible Spending Account (FSA)

What is a Flexible Spending Account (FSA)

Flexible Spending Accounts, also called Flexible Savings Arrangements, allow employees to set aside pre-tax funds for healthcare expenses or dependent care expenses. Employees decide how much is put into their FSA, up to a limit.  

FSAs vs. HSAs

Both Health Savings Accounts and Limited Purpose Health Flexible Savings Accounts can be used to pay for qualified medical expenses pre-tax, but there are 3 key differences:

  1. HSA funds roll over year to year, while FSAs tend to expire at the end of the calendar year (or at the end of the plan year), though there may be a carryover or grace period, depending on the plan
  2. Employers and employees can contribute to HSAs and FSAs, but there are limits to what an employer can contribute to an FSA based on what an employee contributes
  3. Unlike HSAs, you do not have to be a member of a high deductible health plan to contribute to an FSA

What types of expenses are eligible for dependent care FSA reimbursements?

These expenses must be work-related to qualify – in other words, you must pay them so you

(and your spouse if filing jointly) can work or look for work.

  • Before school or after school care
  • Qualifying care for dependent adults
  • Licensed day care centers
  • Nursery schools / preschools
  • Placement fees for a dependent care provider
  • Some child care
  • Late pick-up fees
  • Summer or day camps

What are the benefits of a FSA?

  1. No eligibility requirements
  2. Reduce out-of-pocket costs for qualified expenses.
  3. Significant tax savings. 
  4. Linked to a debit card for easy use.
  5. Immediate access to funds.

FSA Contributions Limits

In 2020, the IRS announced there was a $50 increase in FSA contribution caps, in addition to the $500 maximum employer contribution, if offered. Dependent Care FSA annual maximums remains the same.

 20202019
Contribution Max$2,750$2,700
Dependent Care FSA Max (for individuals or married couples filing jointly)$5,000$5,000
Dependent Care FSA Max (for married persons filing separately)$2,500$2,500

Related Terms: HSAs

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