What is a Medical FSA?

A medical flexible spending account is a vehicle for employees to use pre-tax funds for certain medical, dental, and vision expenses during the plan year.

Note:  A "limited-purpose FSA" can also be set up for dental/vision only.

 
 

How it works

Although it may sound confusing at first, the plan really is simple:

  1. First, estimate your medical care expenses for the year;

  2. Next, decide how much you want to deposit into your FSA;

  3. Each pay period, the amount you designate is withheld from your paycheck before taxes are taken out and deposited into your own individual account.

  4. After you incur eligible expenses and submit your claims, the money in your account is paid back to you tax-free.

Examples of Qualified Expenses

Some examples of eligible reimbursable expenses include: 

  • copays, deductibles, and co-insurance amounts;

  • routine physical examinations;

  • eye exams and glasses or contact lenses;

  • dental and orthodontic charges.

Some examples of charges that are not eligible for reimbursement are: 

  • health club dues (for general well-being) and

  • cosmetic surgery.

 

Tax Savings

Employees make contributions through a pre-tax salary conversion agreement, which means that the employee does not pay Social Security, Medicare, federal, state, or local taxes on the amount contributed each year.  The federal government sets maximum contribution amounts each year.

Employers do not pay FICA (Social Security + Medicare) taxes on the amounts contributed, which means 7.65% savings on the total contributions made by their employees each year.