A flexible spending account is a workplace benefit that lets you set aside pre-tax money for medical or dependent care costs

A flexible spending account (FSA) is an account your employer offers that holds money you contribute before taxes are taken out of your paycheck. You decide how much to put in 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 out of your paycheck automatically throughout the year, and you claim it back by submitting receipts or using a debit card linked to the account.

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 pay less in taxes overall. If you spend $2,500 on medical costs and put that money into an FSA instead of paying out of pocket, you might save $600 to $800 in taxes depending on your tax bracket — money you keep instead of sending to the government.

FSAs come in two types: a medical FSA (sometimes called a healthcare FSA) covers doctor visits, prescriptions, dental work, vision care, and medical equipment; a dependent care FSA covers daycare, after-school programs, and adult day care for elderly relatives. Your employer decides which type to offer, and some employers offer both. You cannot use a medical FSA for dependent care costs or vice versa.

Key Takeaways

  • You choose how much to contribute each year during your employer's open enrollment period, and that amount is deducted from your paychecks before taxes.
  • Medical FSAs cover doctor visits, prescriptions, dental, vision, and medical equipment; dependent care FSAs cover childcare and adult day care.
  • You must submit receipts or use the FSA debit card to withdraw money, and you can only use the funds for the specific type of FSA your employer offers.
  • Money left in your FSA at the end of the year is forfeited — you cannot roll it over to the next year or take it with you if you leave your job.
  • You can only change your FSA contribution during open enrollment or if you have a may have access to life event like a birth, marriage, or job loss.

How much you can contribute and when

Your employer sets the contribution window during open enrollment, which usually happens once a year in the fall for benefits that start January 1. During this period, you decide how much to contribute for the coming year. The IRS sets a maximum: for 2024, the limit for a medical FSA is $3,200 per year, and for a dependent care FSA it is $5,000 per year (or $2,500 if you are married filing separately). Your employer may set a lower limit.

You cannot change your contribution mid-year unless you have a may have access to life event — a birth or adoption, marriage or divorce, loss of health coverage, significant change in dependent care costs, or loss of income. You must request the change within 30 to 60 days of the event (rules vary by employer). If you do not have a may have access to event and you miss open enrollment, you are locked into your current contribution for the entire year.

The money is deducted from your paycheck in equal amounts throughout the year. If you contribute $2,400 to a medical FSA, your employer deducts $200 from each monthly paycheck (or $100 from each biweekly paycheck, depending on your pay schedule). This happens automatically — you do not have to do anything once you have made your election.

What counts as a may have access to medical expense

A medical FSA covers a wide range of healthcare costs, but not everything. may have access to expenses include doctor visits and hospital care, prescription medications, dental work (cleanings, fillings, root canals, orthodontia), vision care (eye exams, glasses, contact lenses), hearing aids, medical equipment (crutches, wheelchairs, blood pressure monitors), and over-the-counter medications (but only if you have a prescription or a letter from your doctor saying you need them). Insulin is covered even without a prescription.

Expenses that do not count include cosmetic procedures, gym memberships, vitamins (unless prescribed), and most over-the-counter items like pain relievers or cold medicine unless you have a doctor's note. If you are unsure whether something is covered, your FSA plan administrator (the company that manages the account) can tell you before you spend the money.

You pay the cost upfront and then submit the receipt to your FSA administrator to get reimbursed, or you use an FSA debit card that is linked to your account. The debit card works at pharmacies, doctor offices, and other healthcare providers that accept it. Some employers require you to submit a receipt even when you use the card, so check your plan documents.

What counts as a may have access to dependent care expense

A dependent care FSA covers the cost of childcare or adult day care that allows you to work. This includes daycare centers, in-home nannies, after-school programs, summer camps (if the camp is primarily childcare rather than recreation), and adult day care for an elderly parent or disabled spouse. The person providing care can be a relative, but not your spouse or a dependent you claim on your taxes.

Expenses that do not count include overnight camps, school tuition (even if the school provides before- and after-school care), or care provided by someone under age 19 who is your dependent. You must have documentation showing the provider's name, address, and tax identification number (or Social Security number if they are self-employed). Your FSA administrator will ask for this before approving reimbursement.

Like a medical FSA, you submit receipts or invoices to get reimbursed. Some dependent care providers can bill your FSA directly, but most require you to pay them and then request reimbursement from your account.

The use-it-or-lose-it rule and what happens to leftover money

Money in your FSA does not roll over to the next year. If you contribute $2,500 to a medical FSA and spend only $1,800 by December 31, the remaining $700 is forfeited — you lose it. This is called the use-it-or-lose-it rule, and it applies to both medical and dependent care FSAs. The money does not go back to your employer; it is simply removed from your account.

Because of this rule, you should estimate conservatively. Look at what you actually spent on medical or dependent care in the past year, and contribute that amount or slightly less. If you are unsure, contribute a smaller amount — you can always spend your own money on healthcare costs if your FSA runs out, but you cannot recover money you forfeited.

There is one exception: some employers offer a grace period of up to 2.5 months into the next year (usually through March 15) to spend money from the previous year's FSA. Not all employers offer this, so check your plan documents. A few employers also offer a carryover of up to $610 (for 2024) into the next year, but this is less common.

FSA coverage if you change jobs or lose employment

If you leave your job, your FSA ends immediately. You cannot take the account with you or transfer it to a new employer's FSA. Any money remaining in your account is forfeited, even if you have not used it yet. This is true whether you quit, are laid off, or are fired.

However, you may have the right to continue coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act), which allows you to keep your FSA for a limited time by paying the full premium yourself. COBRA coverage for an FSA typically lasts only a few months, and you must pay the full cost plus an administrative fee. Your employer must tell you about COBRA rights within 14 days of your job ending.

If your new employer offers an FSA, you can enroll in it during that employer's open enrollment period or immediately if you are a new hire. You start fresh with a new contribution amount and a new account balance — your previous FSA balance does not transfer.

How to access your money and submit claims

The process for getting reimbursed depends on how your employer set up the FSA. Some FSAs issue a debit card that you can use at pharmacies, doctor offices, and other healthcare providers. The card automatically deducts from your FSA balance. Other FSAs require you to pay out of pocket and then submit a claim form with receipts to get reimbursed.

If you use the debit card, keep your receipts anyway. Your FSA administrator may ask you to submit them later to verify that the expense was may have access to. If you do not provide a receipt when asked, the money may be taken back from your account.

To submit a claim, you typically log into your FSA account online, upload a photo or scan of your receipt, and request reimbursement. Most administrators process claims within 5 to 10 business days and deposit the money into your bank account. Some FSAs also accept claims by mail or phone. Check your plan documents or the FSA administrator's website to see which methods are available.

Frequently Asked Questions

Can I use my medical FSA for my spouse or children?

Yes. You can use your medical FSA to pay for may have access to medical expenses for yourself, your spouse, and any dependents you claim on your taxes, even if they are not covered under your health insurance plan. You do not need to be the one receiving the care to use FSA money for it.

What happens if I submit a claim for something that is not may have access to?

Your FSA administrator will deny the claim and ask you to resubmit with a different receipt or documentation. If you have already received reimbursement for a non-may have access to expense, the administrator may ask you to repay the money. Intentionally claiming non-may have access to expenses can result in penalties and loss of FSA rights.

Can I use my FSA money if I am on a high-deductible health plan?

A medical FSA and a high-deductible health plan can work together. However, if you are enrolled in a high-deductible plan, you cannot also contribute to a Health Savings Account (HSA) in the same year — you have to choose one or the other. Check with your employer about which option makes sense for your situation.

Do I lose my FSA if I take unpaid leave or go on disability?

It depends on your employer's plan. Some employers allow you to keep your FSA during unpaid leave or short-term disability, while others end it. Your employer must provide this information in your plan documents. If your FSA ends, you may have COBRA rights to continue it, though this is uncommon for FSAs.

Can I change my FSA contribution if my income changes?

Only if the income change is tied to a may have access to life event — for example, if you lose a job or your spouse loses a job, you may be able to reduce your contribution. A simple change in income or a raise does not may have access to. You can change your contribution during the next open enrollment period.