FLEX Spending Accounts

What Is FLEX?

Flexible Spending Arrangements, also known as FSAs, FBAs (Flexible Benefit Accounts), or simply FLEX, are one of the most dramatic developments in recent years in employee benefit plan design. They are  also referred to as Cafeteria Compensation Plans. It is a plan whereby an employer may provide employees the opportunity to elect benefits on a Pre-Tax basis.

Employees decide on the amount of money to be budgeted for each benefit option pre-selected by the employer. Employees then utilize this account throughout the year as needed, to cover a variety of eligible expenses not covered by health plans, such as:

• Cosmetic/LASIK procedures
• Group life and health premiums
• Medical expenses
• Dependent care assistance

With FLEX, most of these expenses can be paid with pre-tax dollars, yielding substantial income and F.I.C.A. tax savings for many employees. That means increased spendable income…a nice compliment to the increased freedom of benefit choice they have also gained.

What are the advantages for an employer?

Without the investment of new funds, an employer is able to serve a number of objectives, including:

• Reduce F.I.C.A. tax contributions
• Improve employee morale by offering greater benefit choices by allowing pre-tax financing of expenses.
• Increase employee health care cost awareness
• Enhance recruiting by offering progressive benefits

What are the employee tax advantages?

In the absence of FLEX, employees must pay out-of-pocket portions of employer-sponsored health, life, long-term disability, and accidental death and dismemberment plan premiums, as well as health expenses not covered by the employer's health benefit plan, with after-tax dollars. Dependent care expenses are paid on the same basis.

With FLEX, most of these expenses can be paid with pre-tax dollars, yielding substantial income and F.I.C.A. tax savings for many employees. That means increased spendable income…a nice compliment to the increased freedom of benefit choice they have also gained.

Who qualifies?

Every business and its non-owner employees qualify. Every governmental and most private, not-for-profit organizations can also have a FLEX plan. All employees, other than sole proprietors, and most partners in partnerships may participate.

How Spending Accounts Work  |  Frequently Asked Questions About Flexible Spending Accounts