Flexible spending accounts are utilized today by people looking to pay for various medical expenses, and function in a similar fashion to Health Savings Accounts (HSAs). A major difference however is that FSAs are only available through group/employer health insurance plans.

So how does a FSA work?

FSAs allow employees to allocate a specific amount of their yearly earnings at the beginning of a year into an account used for medical expenses. A nice feature about FSAs is the fact that they are essentially prefunded. What this means is that although you contribute small amounts from you paychecks each month, the entire fund will be available from the first day the FSA is put into force. Furthermore, you also get a tax break on the money in your FSA because it is not subject to payroll taxes.

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