Health Care Spending Account Law and Legal Definition

A health care spending account is a fund distributed through Cafeteria Benefit/Section 125 plans for allocation by the employee for healthcare expenses. An employee may be able to be reimbursed for dependents’ health care expenses as well.

The contributions you make to a health care spending account are deducted from your pay before your federal, state, or Social Security Taxes are calculated and are never reported to the IRS. Therefore, you decrease your taxable income and increase your spendable income. For example, if your average annual income tax rate is 20 percent (federal and state taxes combined), you will save $20 in taxes for every $100 you deduct from your paycheck and put into a health care spending account.