Flexible Spending Arrangements: Health FSAs, Dependent Care FSAs, and Adoption Assistance FSAs
Summary
This practice note identifies the requirements for flexible spending arrangements. Flexible spending arrangements (aka, flexible spending accounts or FSAs) operate under cafeteria plans that are established under I.R.C. § 125. Typically, they are one vehicle operating under the umbrella of a cafeteria plan, the primary purpose of which is to permit employees to pay for healthcare costs, certain expenses such as health insurance, dental insurance, life insurance (up to $50,000 coverage), unreimbursed medical expenses, and dependent care services, using pre-tax dollars. Section 125 allows the value of cafeteria plan qualified benefits to be excluded from the gross income of participating employees.