A Flexible Spending Account or Section 125 plan is a benefit plan that allows participants to re-direct some of their earnings into a customized spending account. The plan is set up in accordance with Section 125 of the Internal Revenue Service code so the benefits can be paid with tax free money. Using an FSA, an employee can be reimbursed with tax free dollars for certain medical expenses (see allowable expenses). Flexible Spending Accounts can also be used to pay for child or adult daycare services. Participants are cautioned to not be too ambitious when setting aside funds for an FSA, if you don't use all of your FSA money during the plan year, you lose the remainder.
