How Is FSA Deducted From Paycheck?

A Flexible Spending Account (FSA) is an employer-offered benefit that allows you to set aside a portion of your earnings for qualified healthcare or dependent care expenses. The defining feature of an FSA is that contributions are made with pre-tax dollars, which directly impacts your take-home pay and lowers your overall tax liability.

Determining Your Per-Paycheck Deduction Amount

Establishing your per-paycheck FSA deduction begins during your employer’s open enrollment period. You will make an “annual election,” which is the total amount you commit to the FSA for the upcoming plan year. This election is generally binding unless you experience a qualifying life event. For 2025, the IRS limit for a Health FSA is $3,300.

Once you determine your total annual contribution, the calculation for your paycheck deduction is straightforward. Your employer’s payroll system divides your total elected amount by the number of pay periods in the plan year. For instance, if you elect to contribute $2,600 and are paid bi-weekly (26 pay periods), your deduction per paycheck would be $100.

The Pre-Tax Deduction Process

The financial advantage of an FSA comes from its pre-tax status. When your employer calculates your pay, the FSA contribution is subtracted from your gross earnings before most taxes are computed. This lowers your total taxable income, which reduces the amount you owe for federal income tax and, in most locations, state income tax.

This pre-tax mechanism also affects your contributions to Social Security and Medicare, collectively known as FICA taxes. The standard FICA tax rate is 7.65% for employees. Because your FSA deduction reduces the income base upon which these taxes are calculated, you pay less in FICA taxes as well.

To illustrate the impact, consider an employee earning a $2,000 gross bi-weekly paycheck without an FSA. Their entire $2,000 is subject to federal, state, and FICA taxes. Now, assume that same employee elects a $100 FSA deduction. Their taxable income is reduced to $1,900 before those taxes are calculated, resulting in tax savings on each paycheck.

Identifying the FSA Deduction on Your Pay Stub

To confirm your FSA contributions are being processed correctly, you can locate the deduction on your pay stub. This item is found in the “Before-Tax Deductions” or “Pre-Tax Deductions” section of the statement. This placement reflects that the funds are removed from your gross pay before tax calculations.

Pay stubs use various abbreviations to label the FSA deduction. Common terms you might see include “FSA,” “FLEX,” “MEDFLEX” for a Health FSA, or “DCAFSA” for a Dependent Care FSA. The specific terminology is determined by your employer’s payroll provider.

When reviewing your pay stub, you should verify that the amount deducted matches the calculation based on your annual election. For example, if you elected $2,600 for the year and are paid 26 times, you should see a $100 deduction on each pay stub. This check ensures your election is being executed as intended.