What is the purpose of a flexible spending account (FSA)?

The primary purpose of a flexible spending account (FSA) is to allow employees to set aside pre-tax dollars to pay for eligible healthcare expenses. By contributing to an FSA, individuals can reduce their taxable income, which can lead to tax savings. This is particularly beneficial as the funds removed from an employee's paycheck to contribute to the FSA are not subject to federal taxes, Social Security taxes, or most state taxes.

FSAs typically cover a wide range of health expenses, including copayments, deductibles, and certain over-the-counter medications that are deemed eligible. This makes them a valuable financial tool for managing out-of-pocket healthcare costs effectively.

While there may be options or accounts that provide benefits like employer matches, provide insurance coverage, or allow for savings for future costs, these do not encapsulate the primary function of FSAs, which is the use of pre-tax funds specifically for eligible expenses.