Flexible Spending Account

A flexible spending account (FSA) is an employer plan that lets you set aside pay before tax for medical or dependent care costs. Health FSA contributions skip federal income tax, Social Security and Medicare.

The IRS caps health FSA contributions each year. Unlike an HSA, the money is mostly use-it-or-lose-it: a plan can let you carry a limited amount into the next year or give a grace period of up to two and a half months, but not both.

It is a cafeteria plan pre-tax deduction, like health premiums. Compare it with a health savings account. It is also easy to forget when you wonder why your paycheck is so low, so check the deductions on your stub against gross pay.