A flexible spending accounts (FSA), also known as a cafeteria plan or Section 125 plan, offers employers payroll tax savings. FSAs allow employees to set aside pre-tax money to pay for health insurance and qualified medical and dependent care expenses.
Pre-tax flexible benefit plan options provide value for every stage of life. Whether it’s a young family’s day care costs or an aging employee’s higher out-of-pocket health care expense, an FSA can help.
In its early beginnings, the FSA required employees to use their annual set-aside funds or forfeit them at the end of the plan year. IRS rules relaxed over the years, allowing employers two options that give employees longer access to FSA fund.
Either option can be adopted by an employer, but not both.