Flexible Spending Accounts (FSAs) are employer-established benefit plans that reimburse employees for specified medical expenses as they are incurred. These accounts are allowed under section 125 of the Internal Revenue Code. The employee contributes funds to the account through a salary reduction agreement and is able to withdraw the funds set aside to pay for medical bills. The salary reduction agreement means that any funds set aside in a FSA escape both income tax and Social Security tax. Employers may contribute to these accounts as well. Once the amount of contribution has been designated during an open enrollment period that occurs once each year, the employee is not allowed to change the amount or drop out of the FSA during the year unless he or she experiences a change in family status. By law, the employee forfeits any unspent funds in the account at the end of the year other than the 2.5 month grace period. There is no requirement to have a private health insurance plan with a FSA.