Flexible spending accounts: An attractive employee benefit

Find out why these healthcare and dependent care expense accounts are such a sought-after incentive for employees.

A: No. In fact they are a great employee benefit. An FSA allows employees to convert what otherwise would be taxable income into pretax reimbursement for healthcare and dependent care expenses. Each employee may contribute up to $5,000 ($2,500 beginning in 2013) and then withdraw from his or her account on a pretax basis to pay for certain approved expenses. FSAs reduce taxes for employees who use them, and reduce payroll taxes for the employer.

The only potential drawback of FSAs is that employees who use them forfeit any funds remaining in their accounts at the end of the year, so they must calculate their expenses carefully to prevent this from occurring.

Answers to our readers' questions were provided by Medical Economics editorial consultant David J. Schiller, JD, Schiller Law Associates, Norristown, Pennsyvania. Send your money management questions to medec@advanstar.comAlso engage at http://www.twitter.com/MedEconomics and http://www.facebook.com/MedicalEconomics.