Intuit Academy Tax Practice Exam 2025 – All-in-One Guide for Exam Mastery!

Question: 1 / 400

In tax terms, what is the benefit of a Flexible Spending Account (FSA)?

Contributes to retirement savings

Offers non-refundable credits

Allows pre-tax dollars for medical expenses

The benefit of a Flexible Spending Account (FSA) lies in its ability to allow individuals to set aside pre-tax dollars for qualified medical expenses. This means that the money contributed to an FSA is deducted from an employee's gross income before taxes are calculated, which effectively lowers their taxable income. As a result, individuals can use these funds for out-of-pocket medical expenses, such as deductibles, copayments, and certain prescriptions, without having to pay income tax on the money used. This feature makes FSAs a valuable tool for managing healthcare costs while maximizing tax savings.

In contrast, the other choices refer to concepts that do not apply to FSAs. Though retirement savings are important, FSAs are specifically tied to medical expenses, not retirement. Non-refundable credits relate to tax credits that cannot reduce tax liability below zero, which is outside the scope of what FSAs offer. Lastly, although tax refunds can occur in various situations, FSAs do not directly provide a tax refund option, as they are primarily an arrangement for paying qualifying medical expenses.

Get further explanation with Examzify DeepDiveBeta

Provides a tax refund option

Next Question

Report this question

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy