Accident & Health FundamentalsQuestion 18 of 315
A Flexible Spending Account (FSA) used to pay for qualifying medical expenses is best described as:
a.An employee-owned account that earns interest tax-free for life
b.A federally administered program that pays Medicare premiums
c.An account funded only by the employer that the employee may roll over without limit
d.A pre-tax employee salary-reduction account subject to a 'use-it-or-lose-it' rule, with only limited carryovers allowed
Explanation
A health FSA established under an IRC §125 cafeteria plan is funded with pre-tax employee salary reductions (and any employer contributions). Unused balances are generally forfeited at year-end, although plans may allow a limited carryover or grace period.
Law Reference: 26 U.S.C. §125 (cafeteria plans/FSA)Practice all 315 questions free — no signup required.
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