Setup and Tracking of Flexible Spending Account (FSA)

@mdross171 there is no tax reporting required for FSAs. The FSA contributions are pretax dollars and not reported as taxable income, and thus, reduce your taxable income. It's basically a savings account for pretax dollars to be used for qualified medical expenses.

1. Set up an offline cash or savings account for your FSA. Designate a name for the account that describes the use and the year. Designating the year is important because unused FSA funds are generally forfeited at year-end unless your FSA offers a grace period or carryover.
2. Set up a pretax deduction in your paycheck for the FSA contribution.
3. When you have a qualified medical expense, use your FSA debit card. You can typically use your annual FSA contribution amount any time during the year. So you may have a negative balance in your FSA if you use the most of the annual amount at the beginning of the year. This negative balance then would be reimbursed with FSA contributions for the remainder of the year.
4. If you pay a qualified medical expense from a spending account outside of your FSA, you can request a reimbursement. Once reimbursed, you can show it as a transfer from your FSA account to your spending account to cover the medical expense in the spending account. You can also use separate offsetting entries if you want to show more detail or have an audit trail.