Which statement is NOT correct about a flexible spending account?

A flexible spending account (FSA) is designed to help employees save money on a pre-tax basis for qualified medical expenses. The statement regarding the funds rolling over from year to year is incorrect because the IRS typically requires that funds in an FSA be used within the plan year. Any unused funds at the end of the year may be forfeited unless the employer allows a grace period or a carryover option, both of which are not mandatory.

The other statements outline standard practices regarding FSAs: contributions through salary reduction agreements are common, as they reduce the employee's taxable income. The funds in the account do indeed avoid both income and payroll taxes, providing a tax advantage for those who use the account wisely. Additionally, it is permissible for employers to contribute to an employee’s FSA, enhancing the benefits for the employee without tax implications for the employer or the employee at the time of contribution.