What is one common feature of a Flexible Spending Account (FSA)?

A Flexible Spending Account (FSA) is designed as a tax-advantaged financial account that allows employees to set aside a portion of their earnings to pay for qualified expenses related to health care or dependent care. One of the distinguishing characteristics of an FSA is that it allows tax-free withdrawals for eligible expenses. This means that the money contributed to the account is deducted from taxable income, and the funds can be used for qualifying medical expenses without incurring taxes at the time of withdrawal.

Using tax-free withdrawals is beneficial for employees, as it effectively reduces their overall tax burden while providing a means to manage certain health and dependent care costs more affordably.

The feature of tax-free withdrawals directly addresses the primary intent of FSAs, which is to ease the financial strain of medical and dependent care expenses on employees. This tax benefit is significant and one of the primary draws for such accounts as part of an employer-sponsored benefits package.