A flexible spending account (FSA) allows employees to set aside a portion of earnings to pay for qualified expenses, such as healthcare or dependent care. FSA's can be used for optional surgery or treatments that are not covered by health insurance, glasses or contacts, dental care, dependent care, and other qualified expenses that aren't reimbursed by the health plan.
Contributions made to an FSA are deducted from an employee's pay before Federal, State, and Social Security taxes are calculated, so taxable income is decreased. Employees can only elect to participate in an FSA once per year, and any money that is not used by the end of the year does not roll over. As an employer, offering an FSA can help you reduce your FICA and payroll taxes. The more employees who participate in the FSA plan, the more money you will save.