A Flexible Savings Account lets you set aside pre-tax money from your paycheck to pay for medical costs your insurance doesn't cover

A Flexible Savings Account (FSA) is an account your employer offers where you contribute money before taxes are taken out. That money sits in the account during the calendar year, and you use it to pay for out-of-pocket medical, dental, and vision expenses. The main advantage: the money you put in reduces your taxable income, so you pay less in federal income tax and payroll taxes.

The catch is timing. You choose how much to contribute during your employer's open enrollment period — usually in the fall for the following year. Once the year starts, you cannot change that amount unless you have a may have access to life event (marriage, birth, loss of coverage). Any money you do not spend by the end of the year is forfeited; your employer keeps it. This is called the "use-it-or-lose-it" rule, and it is the single most important thing to understand about FSAs.

Key Takeaways

  • You contribute a set amount each year during open enrollment, and that money comes out of your paycheck before taxes are calculated.
  • You can spend FSA money only on medical, dental, and vision costs that your insurance plan does not cover — not on insurance premiums themselves.
  • Money left in your FSA at the end of the calendar year is forfeited; you cannot carry it forward to the next year (with rare exceptions for a grace period).
  • You access the money through a debit card, reimbursement form, or direct payment to a provider, depending on what your employer's plan allows.
  • You must have a may have access to event to change your contribution amount mid-year; simply changing your mind is not enough.

How much you can contribute and who can use an FSA

The IRS sets a maximum contribution limit each year. For 2024, the limit is $3,200 per person per year. Your employer may set a lower limit, but cannot go higher than the IRS cap. You decide the amount during open enrollment and it comes out of your paycheck in equal installments throughout the year — so if you choose $2,400, roughly $200 comes out each month (before taxes).

To use an FSA, you must be enrolled in your employer's health plan. Self-employed people and those without employer coverage cannot open an FSA. If you are married and both spouses work, each employer may offer an FSA, and you can each contribute up to the annual limit — but the household combined limit is still $3,200 per person, not per couple.

What expenses you can and cannot pay with FSA money

FSA money covers medical, dental, and vision costs that your insurance does not pay. This includes copays, coinsurance, deductibles, and services your plan does not cover at all. Common examples: dental cleanings and fillings, eyeglasses and contact lenses, hearing aids, prescription medications, and physical therapy copays.

You cannot use FSA money for health insurance premiums, over-the-counter medications (unless you have a prescription), cosmetic procedures, or gym memberships. You also cannot use it for dependent care — that requires a separate account called a Dependent Care FSA, which has its own rules and lower contribution limit ($5,000 per year for most households).

The IRS maintains a detailed list of what counts as a may have access to medical expense. If you are unsure whether something is covered, ask your FSA plan administrator or check the IRS Publication 502 before you spend the money. Spending on something that turns out to be ineligible means you pay tax on that money retroactively.

How to access and spend your FSA money

Your employer's FSA plan gives you one or more ways to spend the money. Most plans issue a debit card linked to your FSA account; you swipe it at the pharmacy, doctor's office, or optical shop just like a regular card. Some plans require you to submit a reimbursement form with a receipt after you pay out of pocket. A few plans let you authorize direct payment to a provider.

When you use the debit card, the transaction goes through immediately and the amount is deducted from your FSA balance. If you use reimbursement forms, you submit the receipt and a claim form to your plan administrator, and they send you a check or direct deposit within a few weeks. Keep all receipts — your plan administrator may ask for proof that the expense was actually medical and not something else.

You can spend FSA money throughout the year as you incur expenses. You do not have to wait until you have spent your entire contribution before using it. If you contribute $2,400 and spend $600 in January, you still have $1,800 available for the rest of the year.

The use-it-or-lose-it rule and grace periods

Any FSA money remaining in your account on December 31 is forfeited. Your employer keeps it; you cannot roll it over to the next year or get it back as a refund. This is why choosing the right contribution amount is critical — you want to contribute enough to save on taxes, but not so much that you leave money unspent.

Some employers offer a grace period of up to 2.5 months into the new year (so through mid-March) to spend the previous year's money. If your plan has a grace period, you can use 2024 FSA money to pay for expenses incurred in early 2025. Not all employers offer this, so check your plan documents. A grace period is rare and valuable — if your employer offers one, factor that into your contribution decision.

A few employers offer a carryover of up to $640 (the 2024 limit) into the next year instead of a grace period. This is even rarer. Most plans offer neither, so assume use-it-or-lose-it unless your employer explicitly says otherwise.

Changing your FSA contribution mid-year

Once the year starts, you are locked into your contribution amount. You cannot increase it, decrease it, or stop contributing just because you change your mind. 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, loss of health coverage, significant change in health care costs, or a change in your spouse's FSA or health plan.

If you have a may have access to event, you must notify your employer's benefits administrator within 30 to 60 days (rules vary by employer). You can then increase, decrease, or stop your FSA contributions. If you do not have a may have access to event and try to change your contribution, your employer will deny the request.

FSA versus Health Savings Account (HSA)

FSAs and HSAs are different accounts with different rules. An HSA is available only if you are enrolled in a high-deductible health plan; an FSA works with any health plan. HSAs have higher contribution limits ($4,150 for individual coverage in 2024) and let you carry money forward year to year. FSAs have the use-it-or-lose-it rule and lower limits.

If your employer offers both, you must choose one or the other — you cannot have both in the same year. HSAs are generally better if you expect to have ongoing medical expenses and want to build savings. FSAs are better if you have predictable annual costs and want immediate tax savings. Some employers offer only one, so you may not have a choice.

Frequently Asked Questions

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

You lose access to the account immediately. Money remaining in your FSA stays with your employer; you cannot take it with you or transfer it to a new employer's plan. This is another reason to be conservative with your contribution amount — if you leave mid-year, any unspent money is gone. Some employers allow you to continue using the account through the end of the calendar year under COBRA rules, but this is rare.

Can I use my FSA debit card for anything other than medical expenses?

No. The debit card is restricted to may have access to medical expenses only. If you try to use it for groceries, gas, or other non-medical items, the transaction will be declined. Some cards allow you to use them at pharmacies for non-prescription items, but only if you have a prescription on file for that item.

What if I spend more than my FSA balance during the year?

You cannot overspend your FSA. Once your balance reaches zero, your debit card will decline. You must pay out of pocket for any additional medical expenses. This is why some people contribute conservatively — they would rather have leftover money they can spend on other things than run out mid-year.

Do I have to submit receipts every time I use my FSA debit card?

It depends on your plan. Some plans require substantiation — you submit receipts to prove the expense was medical. Others do not ask for receipts unless they randomly audit your account. Check your plan documents or call your administrator to find out what your plan requires. Keeping receipts is always a good idea in case you are asked.

Can I use my FSA for my spouse's or child's medical expenses?

Yes, as long as they are claimed as dependents on your tax return or are your spouse. You can use FSA money to pay for their copays, prescriptions, dental work, and other may have access to expenses. The money belongs to you, not to them, so you control how it is spent.