DECA Human Resources Management Practice Exam

Which of the following is true about flexible spending accounts?

1. They are entirely post-tax savings accounts

2. They allow employees to withdraw funds for any purpose

3. They allow pre-tax contributions for certain expenses

4. They are only available to full-time employees

The correct answer is: They allow pre-tax contributions for certain expenses

Flexible spending accounts (FSAs) are designed to allow employees to set aside pre-tax dollars to pay for specific out-of-pocket expenses, primarily related to health care or dependent care. By contributing pre-tax income to an FSA, employees can lower their taxable income and save money on expenses that qualify under IRS guidelines. This pre-tax advantage is one of the main benefits of FSAs, making option C the correct answer. The other choices present misconceptions about FSAs. They are not entirely post-tax savings accounts, as pre-tax contributions are a fundamental feature. Moreover, while employees can use funds for qualified expenses, they cannot withdraw funds for any purpose without facing potential tax penalties and forfeiture. Lastly, the availability of FSAs is not restricted solely to full-time employees; part-time employees may also be eligible depending on their employer’s plan.