A Flexible Spending Account allows employees to put aside pre-tax dollars to pay for their out-of-pocket health and/or dependent care costs. Flexible benefit plans are structured in a variety of ways, ranging from simple “premium conversion” programs, to full flex, or “cafeteria" plans, which offer employees a selection of benefits from which to choose. The employee‘s contributions are payroll deducted and deposited to an account maintained by the employer. When the employee incurs an expense for one of the qualifying benefits, the employer reimburses the employee from the money deposited in his/her individual account. These reimbursements are not subject to federal income tax, Social Security tax, and most state and local taxes; therefore, it provides employees with tax-free benefits while providing the employer with a means to reduce employment expenses.
You can find a list of FSA, DCAP, and other eligible expenses here.
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