If an employee receives reimbursement from a flexible spending account, which of the following statements is true regarding gross income?

When an employee receives reimbursement from a flexible spending account (FSA), it is important to understand how this affects gross income. The correct answer highlights that gross income is reduced by the salary reduction amount. This is because contributions made to an FSA are deducted from the employee's salary before taxes, effectively reducing the employee's taxable income. Therefore, the salary reduction amount is excluded from gross income upfront.

As for the reimbursement itself, funds that are withdrawn or reimbursed from an FSA are not included in gross income because they are considered a return of previously excluded amounts (the salary reduction). Consequently, while the total reimbursement doesn't directly reduce gross income at the time of reimbursement, it is the initial deduction from salary that has already lowered the gross income.

In contrast, other options are incorrect for various reasons: the notion that gross income would be reduced by the total reimbursement misunderstands the nature of reimbursements; stating that gross income is unaffected overlooks the tax advantage provided during the initial salary reduction; and the idea that gross income increases due to unreimbursed amounts misinterprets how unreimbursed expenses generally relate to tax considerations.