A flexible spending account (FSA) is an employer-sponsored savings account that lets employees pay certain out-of-pocket medical or dependent care costs with tax-free dollars.
FSA allows to contribute a portion of regular earnings, employers also can contribute. A FSA allows a worker to contribute pretax earnings to pay for qualified medical expenses.
FSAs are primarily for salaried employees since only qualified employers can establish and administer FSA plans, self-employed individuals are not eligible to open FSAs.
The FSA contribution limit is set by the IRS and is annually indexed to inflation. Maximum contribution limit to a flexible spending account is $2,850 in 2022, and $3,050 in 2023.
Employers can offer grace period of 2.5 months, through March 15 of following year. For 2023, the carryover option allows to roll over up to $610 of unspent FSA fund at the end of plan year.
FSA allowed expenses include insurance copayments and deductibles, qualified prescription medications, insulin, chiropractor visits, eyeglasses, LASIK eye surgery and medical devices.
You may enroll in the plan during your employer's open enrollment period prior to the start of the plan year. You may also enroll mid-year if you are a newly hired employee.