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I’ll Choose That One! Enjoying the Flexibility of Flexible Spending Arrangements

June 18, 2024 (3 min read)

A flexible spending arrangement (often referred to as an “FSA” for the flexible spending account that is established for a participating employee) is one benefit employers may offer in a cafeteria plan to allow participating employees to use pre-tax contributions to pay for or reimburse certain eligible health expenses incurred during a plan year, like out-of-pocket (and unreimbursed) medical costs or, in a separate account, reimbursable dependent care expenses or adoption expenses. For health expenses, since the use-or-lose rule was softened by the use of a grace period or carryover of an indexed dollar amount, the notion of forfeiture isn’t as scary for employees.

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Related Content

  • Cafeteria Plan Design and Compliance (IRC § 125)
    See how a flexible spending arrangement can be part of a cafeteria plan, which is the umbrella plan that allows employers to help employees pay for certain expenses, such as health insurance, dental insurance, life insurance, unreimbursed medical expenses, and dependent care services, with pre-tax dollars. 
  • Section 125 Cafeteria Plan Rules Video
    Watch this practice video describing the requirements for cafeteria plans imposed by the Internal Revenue Code, with a focus on the cafeteria plan election by employees to direct their pay, pre-tax, to pay for cafeteria plan health and welfare benefits and how this operation avoids the "constructive receipt" tax rule.

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