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

A Flexible Spending Account (FSA) works by letting you decide how much money to set aside from your salary before taxes are taken out. Your employer holds that money in an account, and you use it throughout the year to pay for specific out-of-pocket healthcare or dependent care expenses. Because the money comes out before federal income tax, Social Security tax, and Medicare tax are calculated, you reduce your taxable income — which means you pay less in taxes overall.

The catch is that FSAs operate on a "use it or lose it" rule in most cases: money you don't spend by the end of the plan year (usually December 31) goes back to your employer. Some plans allow a small carryover or a grace period, but this varies by employer. You also cannot change your election mid-year unless you have a may have access to life event, such as marriage, divorce, birth of a child, or loss of other health coverage.

Key Takeaways

  • You choose how much to contribute each year during open enrollment, and that amount is deducted from your paycheck before taxes are calculated.
  • You can only use FSA money for specific expenses: medical costs your insurance doesn't cover, or dependent care (childcare, adult day care) if you have a may have access to dependent.
  • Money left unspent at the end of the plan year is forfeited unless your employer offers a carryover or grace period.
  • You request reimbursement by submitting receipts and a claim form to your FSA administrator, or you use a debit card linked to the account if your plan offers one.
  • You cannot change your contribution amount during the year unless you experience a may have access to life event or your employer's coverage changes.

What expenses you can and cannot pay for with an FSA

A medical FSA covers out-of-pocket healthcare costs that your insurance plan does not pay for. This includes copays, coinsurance, deductibles, prescription medications, and certain medical equipment or supplies. You can use it for dental work, vision care, mental health treatment, and physical therapy. The IRS maintains a detailed list of what counts as a may have access to medical expense, and it is longer than most people expect — it includes things like acupuncture, hearing aids, and even certain over-the-counter items if prescribed by a doctor.

A dependent care FSA (sometimes called a Dependent Care Account) covers the cost of childcare or adult day care that allows you to work. This includes daycare centers, preschool, after-school programs, summer camps, and in-home babysitters or nannies. It does not cover overnight camps, tuition for kindergarten and above, or care for a spouse. The person being cared for must be your dependent under tax law, and you must have earned income during the year you use the account.

Neither type of FSA covers health insurance premiums, long-term care insurance, or cosmetic procedures. Medical FSAs do not cover over-the-counter medications unless a doctor writes a prescription for them (a change that took effect in 2011). Dependent care FSAs do not cover education or tuition, even if the program includes some childcare.

How much you can contribute and when

The IRS sets an annual limit on how much you can contribute to a medical FSA. For 2024, that limit is $3,200 per person (this amount changes yearly, so check with your employer for the current year). For a dependent care FSA, the limit is $5,000 per household per year if you are married and filing jointly, or $2,500 if you are single or married filing separately.

You choose your contribution amount during your employer's open enrollment period, which usually happens once a year in the fall for coverage starting January 1. You cannot change that amount during the year unless you have a may have access to life event — such as the birth or adoption of a child, marriage or divorce, a significant change in your spouse's income or benefits, or loss of other health coverage. If your employer's FSA plan changes (for example, if they change administrators or alter the plan design), you may also be allowed to change your election.

Your contributions are deducted from your paycheck in equal amounts throughout the year. If you contribute $2,400 to a medical FSA, for example, your employer deducts $200 from each monthly paycheck (before taxes). You do not pay income tax, Social Security tax, or Medicare tax on that money.

How to use your FSA and get reimbursed

The way you access your FSA money depends on what your employer's plan offers. Some FSAs issue a debit card linked to the account, which you can use at pharmacies, doctor's offices, or other healthcare providers. When you swipe the card, the cost is deducted from your FSA balance. Other plans require you to pay out of pocket and then submit a claim for reimbursement.

If you need to submit a claim, you gather your receipts and an itemized bill from the provider, fill out a claim form (usually available from your FSA administrator's website or by mail), and send it in. The administrator reviews it to make sure the expense is FSA-may have access to, and if it is, they reimburse you — either by check, direct deposit, or a credit to your FSA debit card. This process typically takes one to two weeks.

Keep all receipts and documentation for at least three years. The IRS can audit FSA claims, and you need proof that you actually incurred the expense and that it was FSA-may have access to. If you cannot produce documentation, you may have to repay the reimbursement out of pocket.

The "use it or lose it" rule and carryover options

At the end of your plan year (usually December 31), any money left in your FSA is forfeited. You cannot roll it over to the next year, and you cannot withdraw it. This is why many people contribute conservatively — they estimate what they will actually spend rather than contributing the maximum.

However, some employers offer a carryover or a grace period. A carryover allows you to carry up to $640 (for 2024; this amount changes yearly) of unused medical FSA funds into the next plan year. A grace period gives you an extra 2.5 months after the plan year ends to spend down your remaining balance. Not all employers offer either option, and they cannot offer both. Check your plan documents or ask your benefits administrator what your employer allows.

If you leave your job, you typically lose access to any unused FSA funds. Some employers allow you to submit claims for expenses you incurred before you left, but only if you submit them within a certain window (often 30 to 90 days after your last day). Read your plan's termination rules carefully if you are planning to change jobs.

How FSAs interact with other insurance and tax situations

An FSA is designed to work alongside your health insurance plan. The money in your FSA is separate from your insurance — it covers costs that your insurance does not pay for, such as copays, deductibles, and out-of-pocket maximums. If you have a high-deductible health plan (HDHP), you cannot have a medical FSA at the same time; instead, you can open a Health Savings Account (HSA), which has different rules and no "use it or lose it" requirement.

If you are married and both you and your spouse work, you can each have your own FSA through your respective employers. However, for dependent care FSAs, the household limit applies across both accounts combined — so if you and your spouse each contribute $2,500 to dependent care FSAs, you have reached the $5,000 household maximum and cannot contribute more.

FSA contributions reduce your taxable income, which can affect other tax credits or deductions you claim. For example, if you claim the Child and Dependent Care Credit on your taxes, you must reduce the credit by the amount you contributed to a dependent care FSA. Talk to a tax professional if you are unsure how an FSA will affect your overall tax situation.

Common mistakes and how to avoid them

The most common mistake is overestimating how much you will spend and losing money at year-end. To avoid this, track your actual healthcare and dependent care costs for a few months, then estimate conservatively. If you are unsure, contribute less rather than more — you can always increase your contribution next year during open enrollment.

Another mistake is using FSA money for expenses that do not may have access to. Over-the-counter medications without a prescription, vitamins, and cosmetic procedures are common culprits. If you submit a claim for a non-may have access to expense, the administrator will deny it, and you will have to pay out of pocket. When in doubt, ask your administrator before you spend the money.

A third mistake is not keeping receipts. If you use an FSA debit card, you may not receive an itemized receipt at the point of sale. Request one anyway, or ask your provider to mail it to you. Store receipts in a folder or take photos of them. If the administrator asks for documentation and you cannot provide it, you may lose the reimbursement.

Frequently Asked Questions

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

Yes, if your spouse is your dependent under tax law. You can use your FSA to pay for your spouse's copays, deductibles, prescriptions, and other may have access to medical expenses. Keep receipts showing your spouse's name and the expense.

What happens to my FSA if I get laid off or quit my job?

You lose access to your FSA when you leave your job. Some employers allow you to submit claims for expenses you incurred before your last day, but only within a set window (usually 30 to 90 days). Any unused balance is forfeited. You may be able to continue FSA coverage through COBRA, but you would have to pay the full premium yourself.

Can I change my FSA contribution if my income changes during the year?

Not unless you have a may have access to life event. A significant change in income alone does not may have access to. However, if your income change is tied to a life event (such as a spouse losing a job, which affects your household income), you may be able to make a change. Contact your benefits administrator to ask.

Is there a way to get my unused FSA money back?

No. The "use it or lose it" rule is final in most cases. Money forfeited at year-end goes back to your employer. Some employers offer a carryover (up to $640) or a grace period (2.5 months to spend it down), but these are optional and not all employers provide them.

Can I have both an FSA and an HSA?

No, not if you have a high-deductible health plan (HDHP). If you are enrolled in an HDHP, you can only have an HSA, not a medical FSA. However, you can have both an HSA and a dependent care FSA at the same time, since they serve different purposes.