What Is FSA In Health Insurance? 
An FSA is the abbreviation for a Flexible Spending Account plan which is an IRS approved means of allowing employees to set aside payroll deducted dollars on a pre-tax basis to use for several different types of employee personal expenses . Most people encounter an FSA in the context of setting aside money to cover medical , dental or vision expenses not covered by their group health insurance plan but you are not required to be enrolled in a health insurance plan in order to take advantage of your employer 's FSA plan . Also , there are types of FSAs -LRB- Dependent care is an example -RRB- that I wo n't go into at this time . For 2014 the maximum amount an individual can set aside in an FSA has been reduced to $ 2500 . But this change has been somewhat offset by a change to the `` use it or lose it '' rule which in past years meant that any unused dollars in an FSA account at the end of the plan year were forfeited by the account holder . Now up to $ 500 in unused FSA funds can be rolled over from one plan year to the next . Such rolled over funds do not count against the $ 2500 maximum deduction the employee can make in the subsequent FSA plan year so some accumulation in now allowable if your employer has amended their FSA plan document to allow for this . An additional take away though is that over the counter medications are no longer eligible for reimbursement from an FSA . Setting aside funds in an FSA account reduce the employee 's gross taxable income on a dollar for dollar basis . So , depending upon the tax bracket an employee is in , the potential tax savings could be in the 25 % to 40 % range when Federal , Social Security and possibly state taxes are taken into account . An FSA can be a very cost effective tool in helping employees get more value by paying for eligible out-of-pocket expenses . 