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Benefits 101: What Is an FSA?

A primer on how FSAs (flexible savings accounts) can benefit employers and employees.

Pre-Tax Benefits

Pre-tax benefits can translate to significant savings for employees, yet understanding the various options and guidelines can be troublesome.  

Whether you’re an employee trying to do a bit more research on the benefits you’re offered, or an employer looking for resources to explain your benefits programs to  your team, this resource is for you. A flexible spending account is a key component of most benefits programs. Here’s what you need to know.  

What is an FSA?

An FSA (short for flexible spending account) is a tax-advantaged benefit account offered by many employers. 

Flexible spending accounts are designed to be exactly that — flexible. If you are eligible for a FSA, that means you can allocate a certain amount of pre-tax dollars throughout the year to cover qualified expenses, from dental and vision to dependent care. There are two kinds of FSAs: Health FSAs, which cover healthcare costs, and Dependent Care FSAs which cover costs associated with dependent care.

At the beginning of the year, employees can decide how much money they want to allocate to their FSA. In the case of Health FSAs, for instance, the annual maximum in 2022 is $2,850 , so employees can elect up to the full amount at the beginning of the year, and those funds will be available for use immediately. Because that money is taken out of an employee’s paycheck before taxes, they can actually save quite a bit, so long as they’re savvy about budgeting. Not only do employees save big on income tax, employers can also save money on payroll taxes — that’s what we call a win-win. 

How can FSAs help organizations?

As we mentioned above, one of the best things about FSAs is that they’re tax-advantaged, meaning they can be a real financial benefit to all parties involved. When you look up FSAs, you often see warnings about a “use it or lose it” policy. Although it’s true that depending on your employer plan, your unused elections may not roll over from one year to the next, FSA spending can be used for a wide variety of goods and services , so even if you accidentally elect more than you need, you’ll find a good way to spend the remaining money. FSAs can be used to purchase OTC medications, vaccinations, eyeglasses, flu shots, menstrual care products, and more. The FSA store is an amazing resource for FSA eligible products — you’ll be pleasantly surprised by how many everyday items you can spend your pre-tax dollars on.

As far as employers are concerned, FSAs are also a great option. Not only do they help save on payroll tax, as mentioned above, they are also a low-cost way to build an attractive benefits package, which will help recruit and retain talented employees. 

At Benepass, we make it easy for employees to access their FSAs via the web or a mobile app. And for employers, our all-in-one benefits platform enables People leaders to administer pre-tax benefits plans with ease. 

If you have any more questions about how an FSA can benefit your employees, drop us a line at sales@getbenepass.com.

Sasha Kudler

Customer Success