What is a Flexible Spending Account?

Welcome to the SurePayroll minute on FSAs. I’m Michael Alter.

A Flexible Spending Account, or FSA, is a type of Section 125 plan. Your business can establish an FSA to help employees save on medical and other expenses that are not covered by insurance.

It works like this.Employees determine how much they will spend on uninsured medical expenses and dependent care.Expenses could include the cost of doctor visit co-pays, over-the-counter medications and daycare.

Employers withhold that amount from their paychecks, before taxes are deducted.The employee submits receipts throughout the year for reimbursement.

Employees benefit because they don’t pay income or social security taxes on the money set aside, saving between 10 and 35 percent.But they need to keep in mind that no money may be left in the FSA by year’s end, or it will be forfeited to the business.

As an employer, you’ll retain any unused balance remaining in an employee's FSA to offset administrative expenses or future employee benefit costs.

For the simple answer to small business issues, I’m Michael Alter.