Which of the following statements is true regarding FSAs?

Flexible Spending Accounts (FSAs) are designed to offer tax advantages for individuals saving for out-of-pocket health expenses. One of the primary features of FSAs is that they allow employees to set aside pre-tax dollars from their paycheck to pay for qualified medical expenses such as deductibles, copayments, and certain over-the-counter medications.

When contributions are made to an FSA, they are made before federal income taxes and Social Security taxes are taken out, which means the money grows tax-free. Therefore, the reimbursements from the FSA for qualified medical expenses are tax-free as well, making option C correct. This benefit significantly reduces an individual's taxable income and can lead to substantial savings over time on healthcare costs.

The other statements are not accurate within the context of FSAs. Contributions are not taxed when deducted, which disputes the claim made in the first statement. FSAs can be funded through both employee contributions and employer contributions, contradicting the second statement. Lastly, FSAs are not exclusive to federal employees; they can be utilized by employees in various sectors, including private companies, which also negates the fourth statement.