The amount you contribute depends on what you actually spend on medical and dependent care costs

Your FSA contribution is not a fixed number — it is a choice you make based on your own expenses. You decide how much to set aside from your paycheck before taxes, and that money sits in your account for you to spend on covered medical or dependent care costs during the year. The key is estimating accurately, because money left unspent at the end of the plan year is forfeited under the "use-it-or-lose-it" rule.

The IRS sets a maximum contribution limit each year. For 2024, the limit for a dependent care FSA is $5,000 per household per year. For a medical FSA, the limit is $3,200 per person per year. These limits change annually, and your employer's plan documents will tell you the current limit for your specific account type. Your employer may also set a lower limit than the IRS maximum.

Key Takeaways

  • You choose your FSA contribution amount during open enrollment, and it comes out of your paycheck before taxes, reducing your taxable income.
  • The IRS limit for a medical FSA is $3,200 per person in 2024; for dependent care FSA it is $5,000 per household, but your employer may set a lower cap.
  • Money left unspent at the end of the plan year is lost, so you should estimate conservatively based on what you know you will actually spend.
  • If your life circumstances change — a new child, marriage, job loss — you can adjust your contribution mid-year during a may have access to event.
  • Keeping receipts and tracking your spending throughout the year prevents overfunding and helps you use your balance before it resets.

How to estimate your own medical FSA contribution

Start by listing the medical costs you expect to pay out of pocket in the coming year. Include copays for doctor visits, dental work, vision care, prescription medications, and any planned procedures. If you wear glasses or contacts, that is a covered expense. If you use over-the-counter medications like allergy pills or pain relievers, those count too — you just need to keep the receipt.

Look at what you actually spent in the past year if you have that information. Did you go to the dentist twice? Did you refill prescriptions monthly? Did you buy glasses? Use that history as your baseline. If you know a major expense is coming — braces, surgery, a new prescription — add that in. If you are unsure whether something is covered, check your plan documents or ask your benefits administrator before you commit to a contribution amount.

Be conservative. It is better to contribute $1,500 and spend $1,400 than to contribute $2,500 and lose $1,100. Many people underestimate how much they will actually use and end up forfeiting money. If you have a spouse with their own FSA through their employer, coordinate so you do not double-count shared expenses like family dental visits.

How to estimate your dependent care FSA contribution

A dependent care FSA covers childcare, preschool, after-school programs, and adult day care for a dependent relative. Add up what you actually pay for these services in a year. If your child is in full-time daycare at $1,200 per month, that is $14,400 annually. If you use a summer camp for $2,000 and after-school care for $150 per month during the school year, that is $3,800 total.

The dependent care FSA has a $5,000 annual household limit, but there is also a tax credit called the Child and Dependent Care Credit. You cannot use both the FSA and the credit for the same expenses — you have to choose which one saves you more money. For many families, the FSA saves more because it reduces your taxable income, but your tax situation matters. If you are unsure, run the numbers both ways or ask a tax preparer before open enrollment.

Unlike a medical FSA, dependent care expenses are usually predictable. You know what your daycare costs each month. Estimate based on that actual bill, not on a guess about what you might spend.

What happens if you contribute too much

If you set aside $2,500 in a medical FSA but only spend $1,800, the remaining $700 is forfeited at the end of the plan year. It does not roll over to next year, and you do not get it back as a refund. This is the "use-it-or-lose-it" rule, and it is why overestimating is costly.

Some employers offer a grace period — usually two and a half months after the plan year ends — during which you can still spend down your remaining balance. A few plans also offer a carryover of up to $610 (in 2024) to the next year, but this is less common and your plan must specifically allow it. Check your plan documents to see if either option applies to you.

If you realize mid-year that you have overestimated, you cannot simply lower your contribution for the rest of the year unless you have a may have access to life event — a birth, marriage, divorce, job loss, or significant change in dependent care costs. Without a may have access to event, you are locked into your chosen amount for the full plan year.

What happens if you contribute too little

If you set aside $1,000 but your actual medical expenses are $2,500, you pay the extra $1,500 out of pocket with after-tax dollars. You do not get a second chance to add money to your FSA mid-year unless you have a may have access to life event. This is why it is important to think through your expenses carefully during open enrollment.

A may have access to event — such as the birth of a child, a change in your spouse's employment, or a significant increase in dependent care costs — allows you to increase your FSA contribution outside of the annual open enrollment period. You typically have 30 to 60 days from the event to make the change, depending on your employer's plan rules. Contact your benefits administrator as soon as the event occurs.

Using your FSA balance throughout the year

Do not wait until December to spend your FSA money. Spread your spending throughout the year so you use your balance gradually and do not end up scrambling to spend the remainder before it expires. Keep all receipts and documentation for every purchase — you may need to submit them to your FSA administrator to prove the expense was covered.

Many FSAs issue a debit card that you can use at pharmacies, doctor offices, and other providers. Some require you to submit receipts after you pay out of pocket. Know how your specific plan works. If you are unsure whether a purchase is covered, ask before you buy. Some items — like cosmetic procedures, gym memberships, or over-the-counter items without a prescription — are not covered, and you cannot get reimbursed for them.

Track your spending in a simple spreadsheet or notes app. Write down what you spent, when, and how much remains in your account. This habit prevents you from accidentally overspending and helps you plan how to use any remaining balance before the year ends.

Frequently Asked Questions

Can I change my FSA contribution amount during the year?

Only if you have a may have access to life event — birth, marriage, divorce, job loss, significant change in dependent care costs, or loss of other health coverage. You must request the change within 30 to 60 days of the event. Without a may have access to event, your contribution amount is locked in for the full plan year.

What counts as a covered medical expense in an FSA?

Copays, deductibles, prescriptions, dental work, vision care, hearing aids, and over-the-counter medications (with a receipt) are covered. Cosmetic procedures, gym memberships, vitamins without a medical condition, and most wellness products are not. Your plan documents list covered expenses, or you can ask your benefits administrator.

Do I lose my FSA money if I leave my job?

Yes, under the use-it-or-lose-it rule, any unspent FSA balance is forfeited when you leave your job. Some employers offer a grace period after your departure to spend remaining funds, but this is not may provide. If you are planning to leave, try to spend down your balance before your last day.

Should I choose an FSA or a Health Savings Account instead?

An HSA lets you carry unused money forward year to year, while an FSA does not. However, an HSA requires a high-deductible health plan, and not everyone qualifies. An FSA reduces your taxes immediately, which can be valuable if you have predictable medical expenses. Compare both options during open enrollment based on your plan choices and expected spending.

What if my dependent care costs change mid-year?

A significant change in dependent care costs — such as a child starting school or a daycare provider closing — is a may have access to event that allows you to adjust your contribution. Document the change and contact your benefits administrator within 30 to 60 days to request an adjustment.