What is a flexible spending account? An FSA is part of a "cafeteria plan." With an FSA, a staff member at your church could reduce his taxable salary and put that amount in an FSA account to reimburse his family for certain health and/or dependent care expenses (up to eligible limits). These accounts are self-funded, meaning that the employee determines how much to place in the account.
What are the advantages of an FSA? It allows you to reduce your taxable salary and put amounts aside to reimburse the cost of qualified medical expenses such as medical, vision, dental and over-the-counter drug expense not covered by insurance, as well as dependent care. The reimbursement is tax-free!
What are the disadvantages of an FSA? The major disadvantage is the “use it or lose it” requirement. Use-it-or-lose-it refers to an IRS requirement that if you do not spend all the money you have elected into your account, that money remaining in an FSA after March 15 of the following year will be forfeited because it cannot be rolled over or refunded to you.