A Flex Spending Account (FSA) is indeed an account to which funds are added by taking them from your paycheck, and those funds are not taxable. You can spend those funds on healthcare costs (copays, deductibles), or on dependent care costs (daycare).

Most commonly, you pay the expense and submit a receipt to your plan for reimbursement. Some plans issue you a debit card, but you still need to keep your receipts as they may ask for them at any time as proof of a valid expense.

One of the big drawbacks to FSA funds are that it is "use it or lose it"... and if you lose it, it goes back to your employer and they get to keep it. One of the "saving graces" is that you can use FSA funds for over the counter medications, so if you have to, you can stock up on pain relievers, cold medicine, etc., so you don't lose your money.

Make sure you read ALL of the documents that you get for your FSA account. There are lots of strange rules for unique circumstances, for example, you can only designate money to go into a childcare or dependent care fund if you are single or if you are married and both of you work (or one of you is a student or is disabled). If during the year you get married to a non-working spouse, and your childcare contribution is $5000, all of that money immediately becomes taxable to you, even if you use NONE of it.

Cali