Which of the following statements is true about flexible spending accounts?
A)They can only be used for dependent-care expenses.
B)They restrict pretax employee contributions.
C)They work best to the extent that employees have unpredictable expenses.
D)Funds must be used by the plan's year end or they revert to the employer.
E)They cause a reduction in take-home pay.

Question

Quizplus · Accepted Answer

Flexible spending accounts must be used by the plan's year-end or the funds revert to the employer. This is known as the "use-it-or-lose-it" rule. Choices A, B, C, and E are incorrect. Flexible spending accounts can be used for a variety of expenses, not just dependent care. They allow for pretax contributions to reduce taxable income. They work best when employees have predictable expenses. While there is a reduction in take-home pay with contributions to the account, there can also be tax savings.

Which of the Following Statements Is True About Flexible Spending