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What is an “FSA”?

An FSA, or flexible spending account, is an account maintained under a Code Section 125 cafeteria plan to which an employee makes pre-tax salary reduction contributions which may be used to reimburse the employee for certain eligible expenses.

  • A written plan document is required to establish these accounts.

  • An FSA can either be a health care flexible spending account (under Code Section 105) or a dependent care flexible spending account (under Code Section 129).

  • Employers may also make contributions to these accounts on behalf of employees.

  • In addition to the nondiscrimination requirements of Code Section 125, both types of FSAs have their own nondiscrimination tests that must be passed.

  • Elections to participate in an FSA must be made prior to the start of participation or beginning of the new plan year.

  • Mid-year changes to FSA elections are not permitted except in certain limited situations.

  • Amounts in the FSAs unused at the end of the plan year (subject to any grace period or carryover) are forfeited by the participating employee.

In addition to the above, which applies to both types of FSAs, each has some unique characteristics.

There are many other aspects of FSAs that are important to be aware of in order to establish, maintain, and administer a compliant FSA plan. If you have any questions, please contact your Boutwell Fay attorney.

© Boutwell Fay LLP 2021, All Rights Reserved. This handout is for information purposes only and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us. The information contained in this article is effective as of March2021.


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