A flex spending account lets you set aside pre-tax money from your paycheck to pay for medical and dependent care costs
A Flexible Spending Account (FSA) is a benefit account offered through your employer that holds money you contribute before taxes are taken out. You decide how much to set aside each year, and you use that money to pay for may have access to medical expenses or dependent care — whichever type of FSA your employer offers. The money comes directly from your paycheck, so you never see it as taxable income.
The main advantage is the tax savings. Because the money goes in before federal income tax, Social Security tax, and Medicare tax are calculated, you reduce the total taxes you owe. If you spend $2,500 on medical costs and put that money in an FSA instead of paying out of pocket, you might save $500 to $750 in taxes depending on your tax bracket.
FSAs are separate from health insurance. You can have an FSA even if you have a high-deductible health plan, a traditional plan, or no health insurance at all. Your employer sets up the account and usually contracts with a third-party administrator to manage it, handle claims, and issue a debit card or reimburse you for expenses.
Key Takeaways
- Money in an FSA is deducted from your paycheck before taxes, which reduces your taxable income and the total taxes you owe each year.
- You choose how much to contribute during your employer's open enrollment period, and that amount is locked in for the plan year unless you have a may have access to life event.
- Medical FSAs cover doctor visits, prescriptions, dental work, vision care, and medical equipment; dependent care FSAs cover daycare, preschool, and after-school programs.
- Any money you do not spend by the end of the plan year is forfeited — you cannot roll it over to the next year or take it as a refund.
- You must submit receipts or claim forms to prove expenses are may have access to before the administrator will reimburse you or let you use your debit card.
Medical FSA versus dependent care FSA
Your employer offers one or both types of FSA. A medical FSA (also called a health care FSA) covers medical, dental, and vision expenses for you and your dependents. This includes doctor copays, deductibles, prescriptions, eyeglasses, hearing aids, and certain medical equipment. It does not cover health insurance premiums, over-the-counter medications without a prescription, or cosmetic procedures.
A dependent care FSA covers the cost of childcare, preschool, after-school programs, and adult day care for a dependent you claim on your taxes. It does not cover school tuition, overnight camps, or babysitting for entertainment purposes. If you pay for care so you and your spouse can both work, or so a single parent can work, dependent care FSA money can cover it.
You can contribute to both types in the same year if your employer offers both. The contribution limits are separate: medical FSA contributions are capped at $3,300 per year (as of 2024), and dependent care FSA contributions are capped at $5,000 per year for married couples filing jointly or single filers, or $2,500 for married couples filing separately.
How to set up an FSA and choose your contribution amount
You enroll in an FSA during your employer's open enrollment period, which usually happens once a year in the fall for a plan year starting January 1. You tell your employer or the plan administrator how much money you want to contribute for the year. That amount is divided by the number of pay periods and deducted from each paycheck.
Choosing the right amount matters because you lose any money you do not spend. Think about your actual medical and dependent care costs from the past year, not what you hope to spend. If you had $1,200 in copays and prescriptions last year, contributing $1,200 to a medical FSA is safer than contributing $2,500 and hoping you will use it all.
If 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 dependent care costs — you can change your FSA contribution outside of open enrollment. Your employer's human resources or benefits department can tell you which events may have access to and how long you have to make the change.
What happens to money you do not spend
The use-it-or-lose-it rule is the biggest limitation of an FSA. Any money left in your account at the end of the plan year is forfeited. You cannot roll it over to next year, take it as a refund, or move it to another account. This is why choosing a realistic contribution amount is critical.
Some employers offer a grace period of up to 2.5 months after the plan year ends, during which you can still submit claims for expenses you incurred during the plan year. A few employers offer a carryover option that lets you keep up to $640 of unused money (as of 2024) and use it in the next plan year, but this is less common and your employer must choose to offer it.
If you are unsure whether you will use all the money you contribute, start with a lower amount. You can increase your contribution next year if you find you spent more than you expected.
How to submit claims and get reimbursed
When you have a may have access to expense, you pay for it out of pocket or with your own money, then submit a claim to get reimbursed from your FSA. Most administrators let you submit claims online, by mail, or through a mobile app. You will need to provide a receipt or explanation of benefits (EOB) from your provider showing the date, amount, and type of service.
Some FSAs issue a debit card that you can use directly at pharmacies, doctor offices, and other providers without submitting a claim first. However, you may still need to provide proof of the expense later if the administrator requests it. The debit card is convenient but does not change the rule that only may have access to expenses are covered.
Reimbursement usually takes one to two weeks after the administrator receives your claim. Keep all receipts and documentation for at least three years in case the administrator audits your account or asks for proof that an expense was may have access to.
Expenses that are and are not covered
Medical FSA money covers a wide range of health-related costs. Copays, coinsurance, and deductibles are covered. Prescription medications are covered, but over-the-counter drugs are only covered if you have a prescription from a doctor. Dental work including cleanings, fillings, and orthodontics is covered. Vision care including eye exams, glasses, and contact lenses is covered. Medical equipment like crutches, wheelchairs, and glucose monitors is covered.
Expenses that are not covered include health insurance premiums (except COBRA premiums in some cases), cosmetic procedures, gym memberships, vitamins and supplements without a medical reason, and most over-the-counter items. If you are unsure whether an expense qualifies, ask your FSA administrator before you pay for it.
Dependent care FSA money covers the actual cost of care — tuition at a daycare center, fees paid to a nanny or babysitter, or preschool tuition. It does not cover school tuition for kindergarten or higher grades, overnight camps, or activities like sports or music lessons, even if they are supervised.
FSA limitations and when to reconsider
The use-it-or-lose-it rule means FSAs work best for people with predictable, consistent medical or dependent care costs. If your expenses vary widely from year to year, you risk losing money. If you are planning to leave your job, retire, or go on unpaid leave, check your plan documents — you may lose access to your FSA balance when you leave.
FSAs are also not the same as Health Savings Accounts (HSAs). An HSA is only available if you have a high-deductible health plan, but money in an HSA rolls over year to year and can be invested. An FSA does not roll over and is not an investment account. Some people use both if they are may be able to access.
If you have very low medical costs or unpredictable dependent care needs, you might save more money by not contributing to an FSA and paying expenses out of pocket. Run the numbers based on your actual spending and your tax bracket to decide whether an FSA makes sense for you.
Frequently Asked Questions
Can I change my FSA contribution amount during the year?
No, unless you have a may have access to life event such as marriage, divorce, birth of a child, adoption, loss of other health coverage, or a significant change in dependent care costs. Your employer must approve the change and you usually have 30 to 60 days from the event to request it. Outside of these events, your contribution amount is locked in for the plan year.
What happens to my FSA if I leave my job?
You lose access to your FSA account when you leave your employer. Any unused balance is forfeited. You may be able to continue coverage under COBRA for a limited time, but you must pay the full premium yourself. If you move to a new job with an FSA, you can enroll in that plan during open enrollment or if you have a may have access to life event.
Can I use my FSA debit card at any store?
No. FSA debit cards only work at pharmacies, doctor offices, dental offices, vision centers, and other providers of may have access to medical or dependent care services. The card is programmed to decline at stores that sell non-may have access to items like groceries or clothing. Some retailers have pharmacy sections where the card will work for pharmacy purchases only.
Do I need to submit receipts for every FSA claim?
Yes. You must provide a receipt or explanation of benefits showing the date, amount, and type of service for every claim. Even if you use an FSA debit card, the administrator may ask for proof of the expense later. Keep receipts for at least three years in case of an audit.
Can I use my FSA for my spouse or children?
Yes, if they are your dependents. Medical FSA money can cover medical, dental, and vision expenses for you, your spouse, and any dependent children. Dependent care FSA money can cover care for any dependent you claim on your tax return, including children and elderly parents or in-laws.