An FSA is a tax-advantaged savings account your employer offers to set aside money for medical expenses

A Flexible Spending Account (FSA) is an account where you contribute pre-tax money from your paycheck to pay for may have access to medical, dental, and vision expenses. Your employer deducts the money before income tax and payroll taxes are calculated, which means you pay less in taxes overall. You then use the FSA debit card or submit receipts to reimburse yourself for out-of-pocket healthcare costs.

FSAs are offered through your employer's benefits plan, not through the government. You choose how much to contribute each year during your company's open enrollment period, and that money sits in the account until you use it. The account is separate from your health insurance — it works alongside whatever medical plan you have.

The main trade-off is that FSA money must be used within the plan year or you lose it. Some employers allow a grace period of up to 2.5 months into the next year, or let you carry over a small amount (usually $570 or less, depending on the plan), but the "use it or lose it" rule is the defining feature of how FSAs work.

Key Takeaways

  • FSA contributions come from your paycheck before taxes are taken out, lowering your taxable income and the total taxes you owe.
  • You can use FSA money to pay for copays, deductibles, prescriptions, dental work, vision care, and other may have access to medical expenses.
  • Money left in your FSA at the end of the plan year is forfeited unless your employer offers a grace period or carryover option.
  • You must enroll during your employer's open enrollment period each year; you cannot open an FSA outside of that window.
  • FSAs are employer-sponsored only — they are not available to self-employed people or those whose employers do not offer them.

What expenses you can pay for with FSA money

FSA funds cover a wide range of medical, dental, and vision costs. Common expenses include copays and coinsurance, deductibles, prescription medications, dental cleanings and fillings, eyeglasses and contact lenses, hearing aids, and certain over-the-counter items like pain relievers and allergy medicine (though over-the-counter drugs now require a prescription to be FSA-may be able to access).

The IRS maintains a list of what counts as a may have access to medical expense. Some items that surprise people: you can use FSA money for therapy copays, orthodontia, acupuncture (if prescribed by a doctor), and certain medical equipment like crutches or blood pressure monitors. You cannot use it for cosmetic procedures, gym memberships, or general wellness products.

If you are unsure whether a specific expense qualifies, ask your FSA plan administrator or check your plan documents. Different employers sometimes offer slightly different rules about what their FSA covers, so it is worth confirming before you spend the money.

How much you can contribute and when

The IRS sets an annual limit on how much you can contribute to an FSA. For 2024, the limit is $3,200 per year. This limit changes periodically, so check with your employer or plan administrator for the current year's cap. You decide how much to contribute (up to that limit) during your employer's open enrollment period, usually in the fall for a plan year starting January 1.

Once you choose an amount, that contribution is locked in for the entire plan year. You cannot change it mid-year unless you have a may have access to life event — marriage, divorce, birth of a child, loss of other health coverage, or a significant change in your healthcare needs. Simply changing your mind about how much you need is not a may have access to event.

Your employer deducts your FSA contribution evenly from each paycheck throughout the year. If you contribute $2,400 annually and are paid 26 times per year, roughly $92 comes out of each paycheck before taxes.

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

Money remaining in your FSA at the end of the plan year is forfeited — you cannot roll it over to the next year or cash it out. This is the biggest risk of FSA accounts. If you contribute $2,000 and only spend $1,500, the remaining $500 is gone.

Some employers offer a grace period that extends the deadline to use the previous year's money. A grace period typically lasts 2.5 months into the new plan year, so you would have until mid-March to spend 2023 money if your plan year runs January to December. Not all employers offer this, so check your plan documents.

A smaller number of employers allow you to carry over a limited amount of unused FSA money to the next year — usually $570 or less for 2024. Carryover and grace period are different options; your employer chooses one or the other, not both. Ask your benefits administrator which option (if any) your plan includes.

How to use your FSA and get reimbursed

Most FSAs issue a debit card that you can use at the point of sale — at the pharmacy, dentist's office, or eye doctor. Swipe the card like a regular debit card, and the expense is deducted from your FSA balance. Some merchants, especially smaller practices, may not accept FSA cards, in which case you pay out of pocket and submit a claim for reimbursement.

To submit a claim, you typically log into your FSA plan's website or mobile app, upload a receipt or explanation of benefits, and request reimbursement. The plan administrator reviews it to confirm the expense is may have access to, then deposits the money into your bank account or sends a check. This process usually takes one to two weeks.

Keep all receipts and documentation for at least three to five years. If the IRS or your plan administrator audits your account, you will need to prove that the money was spent on may have access to expenses. A receipt showing the date, merchant, and amount is usually sufficient.

FSA versus HSA: when each makes sense

An HSA (Health Savings Account) is often confused with an FSA, but they work differently. An HSA is available only if you have a high-deductible health plan, and money rolls over year to year — you do not lose it. An FSA is offered by any employer and has the use-it-or-lose-it rule, but you do not need a specific type of health plan to have one.

If your employer offers both, an HSA is usually the better long-term choice because the money accumulates and you can invest it. An FSA makes sense if you have predictable medical expenses each year and want to lower your taxes on money you know you will spend anyway. Some people have both — an HSA through their health plan and an FSA through their employer — though the IRS limits how much you can contribute to an FSA if you also have an HSA.

If you are trying to decide between them, calculate your expected medical expenses for the year. If you spend more than $1,500 on healthcare annually and have a high-deductible plan, an HSA is usually better. If you have lower expenses or a traditional health plan, an FSA may be the only option available to you.

Who can open an FSA and when

You can open an FSA only if your employer offers one as part of its benefits package. You cannot open an FSA on your own if you are self-employed or work for a company that does not sponsor one. Enrollment happens during your employer's open enrollment period, which is usually once per year in the fall.

If you are newly hired, you may have a 30- to 60-day window to enroll in your employer's FSA without waiting for the annual open enrollment. Check with your human resources or benefits department about the timeline for new employees.

Once enrolled, you remain in the FSA each year unless you actively decline it during the next open enrollment. If you want to stop contributing, you must opt out during open enrollment or after a may have access to life event.

Frequently Asked Questions

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

You lose access to the FSA when you leave your employer. Any money remaining in the account is forfeited, even if you have not yet used it. Before you resign or are laid off, spend down your FSA balance on any may have access to expenses you can. After you leave, you may be able to continue coverage under COBRA, which would let you keep using the FSA for a limited time, but you would have to pay the full premium yourself.

Can I use my FSA for my spouse or children?

Yes. FSA money can be used for may have access to medical expenses for you, your spouse, and your dependents — including children, even adult children you claim as dependents. You do not need to be on the same health insurance plan. Just make sure the expense is for a may have access to family member and keep documentation showing who the expense was for.

Can I change my FSA contribution mid-year?

Only if you have a may have access to life event: marriage, divorce, birth or adoption of a child, loss of health coverage, or a significant change in your dependent care needs. A change in your income or a change of mind about how much you need does not may have access to. Contact your benefits administrator within 30 days of the event to request a change.

What if I contribute too much and do not spend it all?

The unused money is forfeited at the end of the plan year, unless your employer offers a grace period or carryover. To avoid this, estimate your medical expenses conservatively and contribute only what you are reasonably sure you will spend. If your employer offers a grace period, you have extra time to use the money, which gives you a buffer.

Can I use my FSA for dental and vision expenses?

Yes. FSA money covers dental work (cleanings, fillings, root canals, orthodontia), vision expenses (eyeglasses, contact lenses, exams), and hearing aids. These are all may have access to medical expenses under IRS rules. You can use the same FSA account for medical, dental, and vision costs — there is no separate account for each category.