Traditional health insurance plans are typically accompanied by FSAs. A flexible spending account is a tax-deferred account to help pay for qualifying medical expenses. Employees can contribute funds up to the IRS annual maximum per year into the account tax-free.
Qualified medical expenses include prescriptions, copays, chiropractor visits, and other necessary healthcare expenses. When selecting the FSA option during benefits enrollment, the employee sets his or her annual contribution amount at that time. The amount is typically divided by the number of pay periods in a year, and that amount is withdrawn from each paycheck.
Employees are permitted to borrow against the amount they allotted to contribute to their FSA throughout the year. If employees do not use the funds deposited into their FSA for the plan year, the money is forfeited, which is commonly referred to as the “use it or lose it” aspect of an FSA.