A flexible spending plan is only offered through payroll deduction. You’re allowed to set aside dollars from your paycheck into the flexible benefit accounts you choose to open. Money deposited into your flexible spending account is untaxed as it was deducted from your paycheck before Uncle Sam could tax it. You can now repay yourself from this account for money spent on out-of-pocket medical and dependent care expenses, and also parking and transit expenses per your plan terms.
Money you spend on doctor office co-pays, prescription co-pays, daycare and eligible non-covered health-related expenses is money that can be submitted to your flexible spending plan, such as a Health Care Reimbursement (HCR) or Dependent Care Reimbursement (DCR), where you will be reimbursed out of the pretax funds deducted from your pay.
Here’s the bottom-line… you’re receiving a discount on medical and dependent care expenses, compliments of the IRS.