A flexible spending account (FSA) lets you set aside pre-tax money from your paycheck to pay for medical expenses your insurance doesn't cover

An FSA is an account you fund through payroll deductions before taxes are taken out. The money sits there until you spend it on may have access to medical expenses — things like copays, deductibles, prescription drugs, dental work, and vision care. Because the money goes in before federal income tax, Social Security tax, and Medicare tax are calculated, you reduce your taxable income for the year. If you set aside $2,500 in an FSA and your tax rate is 25 percent, you save roughly $625 in taxes.

Your employer chooses whether to offer an FSA, and if they do, they set the annual contribution limit within federal rules. For 2024, the federal maximum is $3,200 per person per year, though your employer may set a lower limit. You decide how much to contribute during your company's open enrollment period, usually once a year in the fall. The money comes out of your paycheck in equal amounts throughout the year.

You access the money by submitting receipts or using a debit card tied to the account. When you pay for a may have access to expense, you either pay out of pocket and request reimbursement, or you swipe the FSA card at the pharmacy or doctor's office. The account administrator (usually a third-party company your employer hires) reviews your claim and deposits the money into your bank account or reimburses the provider directly.

Key Takeaways

  • FSA money comes from your paycheck before taxes, so contributing reduces your taxable income and the taxes you owe that year.
  • You must choose how much to contribute during open enrollment, and that amount is locked in for the entire year unless you have a may have access to life change.
  • You can only spend FSA money on may have access to medical expenses: copays, deductibles, prescriptions, dental, vision, and certain medical equipment and supplies.
  • Money left unspent at the end of the year is forfeited — you cannot roll it over to the next year or take it as a refund.
  • Your employer must offer an FSA for you to have one; they are not available to self-employed people or those whose employers do not sponsor the plan.

What counts as a may have access to medical expense

The IRS maintains a list of expenses you can pay for with FSA money. Copays and coinsurance (your share of the bill after insurance pays) are always covered. Deductibles — the amount you pay before insurance kicks in — count too. Prescription medications, over-the-counter drugs (with a doctor's note), insulin, and allergy medications all may have access to.

Dental and vision care are covered: cleanings, fillings, root canals, glasses, contact lenses, and eye exams. Medical equipment and supplies include crutches, wheelchairs, hearing aids, blood pressure monitors, and glucose meters. Mental health counseling and therapy sessions are covered if provided by a licensed professional. Certain medical procedures like physical therapy, chiropractic care, and acupuncture count if a doctor prescribes them.

Things that do not count include cosmetic procedures (unless medically necessary), gym memberships, vitamins and supplements (unless prescribed by a doctor for a specific condition), and over-the-counter items like pain relievers or cold medicine without a doctor's prescription. Dental work purely for cosmetic reasons does not may have access to, but orthodontics for a medical condition does.

The use-it-or-lose-it rule and how to plan around it

Money left in your FSA at the end of the calendar year is forfeited. You cannot roll it over to the next year, and you cannot get it back as a refund. This is called the use-it-or-lose-it rule, and it is a major reason to think carefully about how much you contribute.

To avoid losing money, estimate your medical expenses for the coming year. Look at what you spent on copays, prescriptions, and dental work in the past year. If you wear glasses or contacts, factor in when you will need new ones. If you have planned procedures like dental work or vision correction, include those costs. Be conservative — it is better to contribute less and not use all the money than to contribute too much and forfeit the rest.

Some employers offer a grace period of up to 2.5 months into the next year to spend the previous year's money, though this is optional and not all employers provide it. A few employers allow a carryover of up to $610 (for 2024) into the next year, but this is rare. Check your plan documents or ask your benefits administrator whether your employer offers either option.

How to claim reimbursement and keep records

When you incur a may have access to expense, you have two ways to access your FSA money. The first is to pay out of pocket and then submit a claim for reimbursement. You gather your receipt (showing the date, provider name, and amount paid), fill out a reimbursement form through your account administrator's website or app, and upload the receipt. The administrator reviews it, confirms it is a may have access to expense, and deposits the reimbursement into your bank account — usually within 5 to 10 business days.

The second way is to use an FSA debit card, which your administrator issues to you. You swipe it at the pharmacy, doctor's office, or other provider, and the cost is deducted directly from your FSA balance. Some providers can process the card instantly; others require you to submit a receipt afterward to confirm the expense was may have access to. Keep all receipts for at least three years in case the IRS or your administrator audits your account.

Do not submit the same expense twice — once through insurance and once through your FSA. If your insurance covers part of a bill and you pay the rest, you can only seek FSA reimbursement for your out-of-pocket portion. If you are reimbursed by insurance after you have already paid with FSA money, you must return the FSA reimbursement.

FSA vs. health savings account (HSA): which is better

An HSA and an FSA are both tax-advantaged accounts for medical expenses, but they work differently and suit different situations. An HSA is only available if you have a high-deductible health plan (HDHP). An FSA is available with any health plan your employer offers. HSAs allow you to roll over unused money year to year and even invest it; FSAs have the use-it-or-lose-it rule. HSAs have higher contribution limits — $4,150 for individual coverage in 2024 — but you can only contribute if you have an HDHP.

If your employer offers both, an HSA is usually the better choice because you keep the money and can invest it for retirement. But if your employer only offers an FSA, or if you do not have an HDHP, an FSA is still valuable because it reduces your taxes on money you know you will spend on medical care. If you have both an HSA and an FSA, you cannot use them for the same expense — pick one account to pay for each bill.

What happens to your FSA if you leave your job

If you leave your job mid-year, you lose access to your FSA immediately. Any money you have not yet spent is forfeited, even if you contributed it. You cannot take the account with you or transfer the balance to a new employer's FSA. This is one reason to be cautious about contributing a large amount early in the year.

However, you may be able to continue coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act), which lets you stay on your employer's health plan for up to 18 months after you leave. If your employer's FSA allows COBRA continuation — not all do — you can keep using the account and contributing to it, though you will pay the full premium yourself (both the employee and employer share). Check with your benefits administrator about whether your FSA is COBRA-may be able to access before you leave.

If you move to a new job with a different employer, you can open a new FSA with that employer during their open enrollment period or if you have a may have access to life event. Money from your old FSA does not transfer, so plan your spending accordingly before you leave.

Common mistakes to avoid with an FSA

The biggest mistake is overestimating how much you will spend and losing money at year-end. Start with a low number — perhaps $1,000 or $1,500 — and increase it in future years once you understand your actual medical spending. If you have a major procedure planned, like dental work or surgery, that is the year to contribute more.

Another mistake is submitting receipts for ineligible expenses. Cosmetic procedures, gym memberships, and over-the-counter items without a prescription are common culprits. Read the IRS list of may have access to expenses before you submit a claim. If you are unsure whether something qualifies, ask your administrator before you pay for it.

Do not wait until December to spend your FSA money just because it is there. Rushed spending often means paying for things you do not need. Instead, plan your spending throughout the year. If you have a grace period or carryover option, use it strategically. And if you realize in October that you will not spend all your money, do not panic — many providers allow you to stock up on may be able to access items like glasses, hearing aid batteries, or medical supplies before the year ends.

Frequently Asked Questions

Can I change how much I contribute to my FSA during the year?

No, unless you have a may have access to life event. Marriage, divorce, birth of a child, loss of other health coverage, or a significant change in your spouse's benefits are examples. You must request the change within 30 to 60 days of the event. Outside of these circumstances, your contribution amount is locked in for the entire year.

What if I do not use all my FSA money by the end of the year?

The unused balance is forfeited. You lose it. Some employers offer a grace period (usually 2.5 months into the next year) or a limited carryover (up to $610 for 2024), but these are optional. Check your plan documents to see if your employer offers either option.

Can I use my FSA to pay for my spouse or children?

Yes. You can use your FSA to pay for may have access to medical expenses for your spouse and any dependents you claim on your tax return. You do not need a separate account for each family member — one FSA covers the whole family.

What happens if I submit a receipt for an ineligible expense?

Your administrator will deny the claim and ask you to resubmit with a different receipt or withdraw the request. If you have already been reimbursed for an ineligible expense, you must repay the money to the account. Repeated errors may trigger an audit of your account.

Can I use my FSA if I am self-employed?

No. FSAs are only available through employers. If you are self-employed, you cannot open an FSA, but you may be able to open an HSA if you have a high-deductible health plan. You can also deduct certain medical expenses on your tax return.