National Evaluation Series (NES) Business Studies Practice Test

Which of the following expenses is eligible for reimbursement through a flexible spending account?

1. Vacation expenses

2. Health insurance premiums

3. Over-the-counter medications and medical expenses

4. Retirement savings contributions

The correct answer is: Over-the-counter medications and medical expenses

The correct answer pertains to over-the-counter medications and medical expenses, which are eligible for reimbursement through a flexible spending account (FSA). An FSA is designed to help employees pay for out-of-pocket healthcare expenses with pre-tax dollars. This allows for a reduction in taxable income, as the funds contributed to the FSA are not subject to federal payroll taxes. Eligible expenses typically include medical, dental, and vision care costs that may or may not be covered by insurance. This includes prescription medications, certain over-the-counter medications, medical supplies, and other out-of-pocket healthcare costs mandated by the IRS. This characteristic of the FSA enables participants to manage their medical spending more effectively and affordably. In contrast, vacation expenses are personal costs that do not relate to medical care, and therefore, they are not eligible for reimbursement. Health insurance premiums can sometimes be reimbursed under specific circumstances but typically are not covered by standard FSAs; instead, they may be handled through health savings accounts (HSAs) or other specific plans. Retirement savings contributions are also unrelated to medical expenses, hence they do not qualify for reimbursement through an FSA.