FSA – Flexible Spending Account sometimes called a cafeteria plan or a section 125 plan is a plan that is provided to employees by their employer and governed by the (IRS) Internal Revenue Service. Flexible Spending Accounts allow employees to set aside money on a pre-tax basis for future out of pocket medical and daycare expenses of their family, which includes spouses and dependents.
Carryover - As of October 31, 2013 employers are now allowed to add a provision that allows employees to carryover up to $500 of unused funds into the next plan year. The carryover can only be offered for health FSA plans (daycare is excluded) that do not offer a grace period.
Grace Period - A grace period is typically 2 and a half months following the plan year, which allows employees to spend unused funds that remain in their FSA account. The employer can offer a carryover or a grace period to their employees.
Run-out Period - A run-out period is a predetermined length of time (typically 90 days) that employees can submit claims for expenses that were incurred in the plan year.
Sample FSA Employee Savings:
Typical Expenses allowed to be purchased as needed:
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