FSAs (Flexible Spending Accounts) are governed by Section 125 of the Internal Revenue Code.
Employees contribute to FSAs through a salary reduction agreement. The employer may also contribute to an FSA if specified in the plan documents.
Tax on employee benefits through flexible spending account
All contributions are excluded from an employee’s gross income and wages subject to FICA (7.65%). Similarly, employers deduct reimbursements as a business expense and exclude them from wages subject to FUTA (0.8%) and the employer portion of FICA (7.65%).
See Publication 969 for more information.