FSA funds are pre-tax dollars your employer sets aside from your paycheck for medical expenses you choose in advance

An FSA (Flexible Spending Account) holds money deducted from your salary before taxes are calculated. You decide at the start of each plan year how much to set aside — typically between $110 and $3,200 per year, though your employer may set a lower cap. That money sits in an account you control, and you spend it on may have access to medical expenses that your health insurance doesn't cover or that you choose to pay out of pocket.

The key difference from regular money: FSA funds come out of your paycheck before federal income tax, Social Security tax, and Medicare tax are taken. That means if you set aside $2,000 for medical costs, you're not paying income tax on that $2,000. The trade-off is strict — you must spend the money on allowed expenses, and most of it disappears if you don't use it by the end of the plan year.

Key Takeaways

  • FSA funds pay for specific medical expenses: copays, deductibles, prescriptions, dental work, vision care, and some medical equipment, but not health insurance premiums or cosmetic procedures.
  • You choose how much to set aside each year during open enrollment, and that amount is locked in unless you have a may have access to life event like a job change or birth.
  • Money you don't spend by the end of the plan year is forfeited — there is no rollover to the next year, though some employers offer a grace period of up to 2.5 months.
  • You access FSA funds through a debit card, reimbursement form, or direct payment to providers, depending on how your plan is set up.
  • FSA funds reduce your taxable income, which lowers the total taxes you pay that year.

What expenses FSA money actually covers

FSA funds cover may have access to medical expenses defined by the IRS. The list is long but specific. Copays and coinsurance for doctor visits, urgent care, and emergency room trips all count. Prescription medications, including birth control, are covered. Deductibles you owe before insurance kicks in can be paid with FSA money.

Dental and vision care are major uses: cleanings, fillings, root canals, crowns, glasses, contact lenses, and eye exams all may have access to. Medical equipment like crutches, wheelchairs, blood pressure monitors, and glucose meters are covered. Over-the-counter medications like pain relievers and allergy medicine count only if you have a prescription from a doctor. Therapy copays, including mental health and physical therapy, are covered expenses.

What doesn't work: health insurance premiums themselves, cosmetic procedures like teeth whitening or Botox, gym memberships, vitamins without a medical reason, and most over-the-counter items without a prescription. Long-term care insurance and life insurance don't may have access to. Expenses for a spouse or dependent who is not claimed on your taxes are not covered.

How much you can set aside each year

The IRS sets an annual limit on FSA contributions. For 2024, the limit is $3,200 per person per year. Your employer may choose a lower limit — many do — so check your plan documents to see what your workplace allows. You decide on this amount during open enrollment, usually in the fall, and it takes effect January 1 of the following year.

Once you choose an amount, you're locked in for the entire plan year. You cannot increase or decrease your contribution unless you have a may have access to life event: marriage, divorce, birth or adoption of a child, loss of other health coverage, or a significant change in your spouse's benefits. A job change also qualifies. Without one of these events, you cannot change your FSA amount mid-year.

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

Money left in your FSA at the end of the plan year does not roll over to the next year. If you set aside $2,000 and spend only $1,500, the remaining $500 is forfeited — you lose it. This is the single most important rule to understand when deciding how much to contribute. Many people set aside too much and waste money they could have kept.

Some employers offer a grace period of up to 2.5 months after the plan year ends. During this time, you can still use remaining FSA funds to pay for expenses incurred during the grace period itself. Not all employers offer this, so check your plan. A few employers instead allow a small carryover — up to $610 in 2024 — but this is less common and your plan must specifically permit it.

How to access and spend FSA funds

The method depends on your plan. Many FSAs issue a debit card linked to your account. You swipe it at the pharmacy, doctor's office, or medical supply store just like a regular card. The charge comes directly from your FSA balance. Some plans require you to pay out of pocket and then submit a reimbursement form with receipts to your FSA administrator — they then send you a check or direct deposit.

For some expenses, you can authorize your provider to bill your FSA directly. This is common with dental offices and vision centers. Keep all receipts and explanation of benefits documents. Your FSA administrator may ask for proof that an expense qualifies, especially for items that could be personal care rather than medical (like sunscreen, which qualifies only if prescribed for a skin condition).

You can check your FSA balance through your plan's website or mobile app, usually provided by the administrator — often companies like WageWorks, HealthEquity, or Conduent. This shows how much you have left to spend and tracks your transactions.

Tax savings from FSA contributions

The main benefit of an FSA is the tax savings. If you contribute $2,000 to an FSA and your combined federal, state, and Social Security tax rate is 25 percent, you save $500 in taxes that year. That's money back in your pocket. The lower your tax bracket, the smaller the savings; the higher your bracket, the larger.

This tax savings only happens if you actually spend the money on may have access to expenses. If you contribute $2,000 and use only $1,500, you still get the tax break on the full $2,000 — but you lose the unspent $500. The math only works in your favor if you spend what you set aside.

Deciding whether an FSA makes sense for you

An FSA works best if you have predictable medical expenses you know you'll incur: regular prescriptions, ongoing therapy, annual dental work, or planned procedures. Add up what you spent on may have access to expenses last year, then set aside roughly that amount. This captures the tax savings without risking forfeiture.

An FSA is riskier if your medical needs are unpredictable or if you rarely see a doctor. Setting aside $3,200 and using only $800 means you lose $2,400. If you're unsure, start with a conservative number — perhaps $500 or $1,000 — and increase it next year if you find you're spending more than that.

Compare your FSA option to a Health Savings Account (HSA) if your employer offers both. HSAs roll over year to year, so there's no use-it-or-lose-it pressure. However, HSAs require a high-deductible health plan, and not everyone qualifies. FSAs work with any health plan.

Frequently Asked Questions

Can I use FSA money for my spouse or children?

Yes, but only if they are claimed as dependents on your tax return. You can pay for their copays, prescriptions, dental work, and other may have access to expenses. If your spouse files taxes separately and is not your dependent, their expenses don't may have access to.

What happens to my FSA if I leave my job?

You have until the end of the plan year to spend the money you've already contributed. After you leave, you cannot add new contributions. Some employers allow you to continue the FSA through COBRA, which lets you keep the account but you pay the full premium yourself. Check with your employer's benefits office about your specific options.

Can I use FSA funds for telehealth visits?

Yes. Copays for telehealth appointments with doctors, therapists, and other licensed providers are may have access to expenses. The provider must be licensed and the visit must be for diagnosis or treatment of a medical condition.

What if I submit a receipt and the FSA says it's not a may have access to expense?

You can appeal the decision by providing additional documentation — a prescription, a letter from your doctor explaining the medical necessity, or a copy of the product label. Keep records of all communications. If the FSA still denies it, you can file a complaint with your state insurance commissioner or the U.S. Department of Labor.

Do I have to use my FSA debit card, or can I pay cash and get reimbursed?

Either method works, depending on your plan. If your plan issues a debit card, you can use it at the point of sale. If your plan requires reimbursement, you pay out of pocket and submit receipts. Some plans allow both. Check your plan documents or call your FSA administrator to confirm which methods are available to you.