An FSA lets you set aside pre-tax money from your paycheck to pay for medical costs that your insurance doesn't cover

A Flexible Spending Account (FSA) is a workplace benefit that works like this: you decide how much money to put aside from your paycheck before taxes are taken out, your employer holds that money in an account, and you use it to pay for medical expenses throughout the year. The money comes out of your gross income, which means you pay less in federal income tax and Social Security tax. You get the account only if your employer offers it — it is not something you set up on your own.

The account is "use it or lose it," which is the part that catches most people. Money you don't spend by the end of the plan year (usually December 31) goes back to your employer. Some plans let you carry over a small amount — typically $610 in 2024 — but most do not. This is why you need to estimate carefully how much medical spending you will actually have.

Key Takeaways

  • You choose how much to contribute each year during open enrollment, and that money is deducted from your paycheck before taxes.
  • You can use FSA funds to pay for copays, deductibles, prescription drugs, dental work, vision care, and other medical costs your insurance does not cover.
  • Money left in the account at the end of the plan year is forfeited unless your employer's plan allows a small carryover.
  • You access the money through a debit card, reimbursement forms, or direct payment to providers, depending on how your plan is set up.
  • You cannot change your contribution amount during the year unless you have a may have access to life event like a change in family size or loss of other coverage.

How money goes in and comes out

During your employer's open enrollment period (usually in the fall), you decide how much to contribute for the next year. That amount is divided by the number of paychecks you receive, and the money is deducted from each check before federal income tax is calculated. If you contribute $2,400 for the year and get paid every two weeks, roughly $92 comes out of each paycheck.

Your employer sends that money to a third-party administrator who manages the account. When you have a medical expense, you pay for it out of pocket and then request reimbursement, or in some cases you can use an FSA debit card to pay directly. You will need to submit a receipt or explanation of benefits to prove the expense was medical and not covered by insurance. Some administrators make this easier by connecting to your insurance company's records automatically.

What expenses you can and cannot pay for

FSA money can cover copays, coinsurance, deductibles, prescription medications, dental work, vision care, hearing aids, and many over-the-counter items like pain relievers and allergy medicine. The IRS publishes a list of what counts as a medical expense, and it is longer than most people expect — it includes things like acupuncture, chiropractic care, and even certain medical equipment.

You cannot use FSA funds for health insurance premiums, cosmetic procedures, or general wellness items like vitamins or gym memberships (unless they are prescribed by a doctor for a specific condition). Sunscreen, toothpaste, and shampoo do not count, even if they are medicated. If you are unsure whether something qualifies, ask your plan administrator before you spend the money — they can tell you whether a specific item is covered under your plan.

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

This is the biggest risk with an FSA. If you contribute $2,500 and only spend $1,800, the remaining $700 disappears. You do not get it back as a refund, and it does not roll over to next year (unless your employer allows the $610 carryover). This is why estimating your medical spending matters — contribute too much and you waste money; contribute too little and you miss the tax savings.

To estimate, look at last year's medical bills: copays for doctor visits, prescription refills, dental cleanings, eye exams, and anything else you paid out of pocket. If you know you are having a procedure coming up, factor that in. If you have a chronic condition that requires regular medication or treatment, use that as your baseline. Many people contribute between $1,000 and $2,750 (the 2024 maximum), but the right amount depends entirely on your own situation.

When you can change your contribution

Once you choose an amount during open enrollment, you are locked in for the entire plan year. You cannot change it just because you want to. The IRS allows changes only for may have access to life events: marriage, divorce, birth or adoption of a child, death of a spouse or dependent, significant change in your spouse's benefits, loss of other health coverage, or a substantial change in your medical needs.

If one of these events happens, you usually have 30 to 60 days to contact your employer's benefits department and request a change. You will need to provide proof — a marriage certificate, birth certificate, divorce decree, or letter from your other insurance company. Without a may have access to event, your contribution stays the same until the next open enrollment period.

How to request reimbursement

The process depends on how your plan is set up. Some employers issue an FSA debit card that you can use like a regular card at pharmacies, doctor's offices, and other medical providers. Others require you to pay out of pocket and then submit a claim form with receipts. A few plans let you do both — use the card when possible and submit forms for expenses the card cannot cover.

When you submit a claim, you will need the receipt or explanation of benefits showing what you paid and that it was a medical expense. The administrator reviews it to make sure it qualifies, and if it does, they reimburse you within a few days to a few weeks. Keep all receipts for at least three years in case the IRS or your plan administrator asks for proof later.

FSA versus HSA: which one you might have

If your employer offers both an FSA and a Health Savings Account (HSA), they work differently. An FSA is "use it or lose it" with a lower contribution limit. An HSA lets you roll money over year to year, has a higher contribution limit, and the money stays in the account even if you leave your job — but you can only open an HSA if you are enrolled in a high-deductible health plan. Some employers offer only one, some offer both, and some offer neither.

If you have access to both, an HSA is usually better for long-term savings because the money does not disappear. An FSA makes sense if you have predictable medical expenses each year and want to lower your taxes on that spending. You cannot contribute to both in the same year, so you have to choose.

Frequently Asked Questions

What happens to my FSA money if I leave my job?

The money in your FSA account belongs to your employer, not to you. When you leave, you lose access to it immediately, even if you have not spent it all. Some employers let you continue using the account for a short period (called COBRA continuation), but you have to pay the full cost yourself. This is one reason to be conservative with your contribution amount if you think you might change jobs.

Can I use my FSA to pay for my spouse's or children's medical expenses?

Yes. FSA money can be used for medical expenses of you, your spouse, and your dependents — anyone you claim on your tax return. You do not have to be on the same health insurance plan. Just make sure you have receipts showing the expense and that it qualifies as a medical cost.

What if I submit a claim and it gets denied?

The plan administrator will send you a letter explaining why. Common reasons are that the expense does not may have access to, you did not include a receipt, or the receipt does not show enough detail. You can usually appeal or resubmit with better documentation. Contact your plan administrator to ask what they need to reconsider.

Can I use FSA money for dental or vision care?

Yes. Dental copays, cleanings, fillings, orthodontia, and vision exams and glasses all count as medical expenses. However, if your dental or vision coverage is separate from your health insurance, you still need to use FSA money only for costs that your dental or vision plan does not cover — the same way you would with medical expenses.

Do I have to use all my FSA money by December 31?

Yes, unless your employer's plan includes a carryover provision. Some plans let you carry over up to $610 into the next year, but most do not. Check your plan documents or ask your benefits department whether your plan allows carryover. If it does not, plan to spend or lose the money by year-end.