Flexible Spending Account

A Flexible Spending Account, commonly abbreviated as FSA, is a U.S. tax-advantaged benefit account that allows employees to set aside a portion of their earnings on a pre-tax basis to pay for eligible healthcare or dependent care expenses. Because contributions are deducted before taxes are calculated, an FSA effectively reduces an employee's taxable income while providing funds specifically earmarked for qualifying expenses. FSAs come in different types, with a healthcare FSA covering eligible medical, dental, and vision expenses not otherwise covered by insurance, and a dependent care FSA covering costs associated with caring for a qualifying dependent, such as childcare, while the employee works. A key characteristic of most FSAs is that they operate on a use-it-or-lose-it basis within a given plan year, meaning unused funds may be forfeited if not spent by the deadline, though some plans offer a limited grace period or small carryover allowance. Employers offer FSAs as part of a broader benefits package to help employees manage predictable healthcare or dependent care costs more efficiently. Because FSAs are a U.S.-specific tax vehicle tied to the American tax code, companies with international employees generally need to offer different benefit structures in other countries, where healthcare and dependent care support are often handled through different mechanisms.