A more thorough explanation:

A Flexible Savings Account (FSA) is a special type of account that allows employees to set aside pre-tax money from their salary to pay for qualified medical expenses. The FSA is usually funded through a voluntary salary reduction agreement between an employee and their employer. The employee contributes to the FSA by allowing their employer to withhold a specified amount of money from their salary and deposit it into the FSA. The employer may also make contributions to the FSA if it is established in the employer-provided benefits plan.

For example, if an employee has a salary of $50,000 and decides to contribute $2,000 to their FSA, their taxable income for the year will be reduced to $48,000. This means they will pay less in taxes.

The FSA has a contribution limit of $2,750 per employer/employee for the year 2021. The employee may change the amount of their contribution or revoke the salary reduction agreement, provided the applicable law and the employer-provided benefits plan allow it. Unused money in the FSA may be carried over to a plan year ending the following calendar year, depending on the conditions of the employer-established benefit plan.

Employees commonly use the money available in the FSA to pay for qualified medical expenses not covered by insurance, such as co-payments, deductibles, prescription medications, over-the-counter medicines, and medical equipment. For example, if an employee needs to pay a $50 co-payment for a doctor's visit, they can use the money in their FSA to cover the cost.

Having an FSA provides employees with tax benefits to offset healthcare costs. Contributions made by the employer can be excluded from the employee’s gross income, which is used for taxation purposes. No employment or federal income taxes are deducted from the contributions made to the FSA. Reimbursements may be tax-free if the employee pays qualified medical expenses.