A Flexible Spending Account is a workplace benefit that lets you set aside pretax money for medical and 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 set aside each year—usually between $100 and $3,200 for medical expenses, or up to $5,000 for dependent care—and that money goes into the account. When you have a medical bill or childcare expense that the FSA covers, you pay out of pocket first, then submit a receipt to get reimbursed from the account.

The main advantage is that the money you put in reduces your taxable income. If you earn $50,000 and contribute $2,000 to an FSA, you only pay income tax on $48,000. You also avoid paying payroll taxes (Social Security and Medicare taxes) on that $2,000. For someone in the 24% tax bracket, that $2,000 contribution saves roughly $480 in taxes per year.

FSAs are separate from health insurance. You can have an FSA whether you have a high-deductible plan, a traditional insurance plan, or no health insurance at all. Your employer administers the account, though a third-party company usually handles the paperwork and reimbursements.

Key Takeaways

  • You choose how much to contribute each year during your employer's open enrollment period, and that amount is deducted from your paycheck before taxes.
  • Medical FSAs cover copays, deductibles, prescriptions, dental work, vision care, and other out-of-pocket health costs; dependent care FSAs cover daycare and after-school programs.
  • You must submit receipts or invoices to be reimbursed, and you cannot carry unused money forward to the next year in most cases.
  • If you leave your job or change plans, you lose access to any money still in the account, so you need to estimate carefully what you will actually spend.

What expenses an FSA actually covers

A medical FSA covers most out-of-pocket health costs that you would pay anyway. This includes copays when you see a doctor, coinsurance (your share of the bill after insurance pays), deductibles, prescription medications, dental work, vision care including glasses and contacts, hearing aids, and medical equipment like crutches or blood pressure monitors. You can also use it for mental health services, physical therapy, and certain over-the-counter items like pain relievers and allergy medicine if you have a prescription or doctor's note.

A dependent care FSA is narrower. It covers daycare centers, in-home babysitters, after-school programs, and summer camps—but only for children under age 13 or for an adult dependent who cannot care for themselves. It does not cover school tuition, overnight camps, or activities like sports lessons. The money must be used so you can work or look for work; you cannot use it to pay for childcare while you are on vacation.

Both types have a list of what does not may have access to. Medical FSAs do not cover cosmetic procedures, gym memberships, vitamins without a prescription, or most over-the-counter items unless you have a doctor's note. Dependent care FSAs do not cover tuition or education costs. Your employer's plan document or the FSA administrator's website will have the full list.

How much you can contribute and when

For 2024, the maximum contribution to a medical FSA is $3,200 per year. For a dependent care FSA, the limit is $5,000 per year if you are married and file taxes jointly, or $2,500 if you are single or married filing separately. These limits change each year; your employer will tell you the current limit during open enrollment.

You set your contribution amount once per year during your employer's open enrollment period, which is usually in the fall for benefits that start January 1. You cannot change your contribution 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 childcare costs. If you try to change without a may have access to event, your employer will deny the request.

The money comes out of your paycheck in equal amounts throughout the year. If you contribute $2,400 to a medical FSA, roughly $100 comes out of each monthly paycheck (before taxes). You can start using the account as soon as the plan year begins, even though you have not finished paying in the full amount yet.

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

Most FSA plans have a use-it-or-lose-it rule: any money you do not spend by the end of the plan year is forfeited. If you contribute $2,000 and only spend $1,500, you lose the remaining $500. This is why estimating carefully matters. You cannot get the money back as a refund, and it does not roll over to next year.

Some employers offer a grace period of up to 2.5 months after the plan year ends, during which you can still submit receipts for expenses from the previous year. A few employers offer a carryover option that lets you keep up to $610 (in 2024) and use it in the next year, but this is less common. Check your plan documents or ask your benefits administrator whether your plan has either option.

Because of this rule, many people contribute less than the maximum to be safe. If you know you will have predictable costs—regular prescriptions, ongoing therapy, or consistent childcare—you can estimate more confidently. If your costs are unpredictable, contributing a smaller amount reduces the risk of losing money.

How to get reimbursed from your FSA

The reimbursement process depends on how your employer's FSA is set up. Some FSAs issue a debit card that you can use at pharmacies, doctor offices, and other providers that accept it. The card is linked to your FSA balance, and the purchase is deducted automatically. Other FSAs require you to pay out of pocket and then submit a claim for reimbursement.

If you submit a claim, you will need to provide a receipt or invoice showing the date, the provider's name, the service or item, and the amount you paid. You submit this through the FSA administrator's website, mobile app, or by mail. Most administrators process claims within one to two weeks. Some require a doctor's note or prescription to prove the expense is FSA-may be able to access.

Keep all receipts and documentation for at least three years. The IRS can audit FSA claims, and you need proof that the money was spent on covered expenses. If you cannot provide documentation, you may have to repay the reimbursement.

What happens to your FSA when you leave your job

When you leave your employer, you lose access to the FSA immediately. Any money still in the account is forfeited, even if you contributed it. You cannot take the account with you or transfer it to a new employer's FSA. This is one of the biggest drawbacks of FSAs: the money is not portable.

Before you leave, submit any pending claims you have receipts for. Some administrators allow you to submit claims for a short period after you leave (usually 30 to 90 days), but do not count on it. If you have a large balance remaining and you know you are leaving soon, you can try to use it up by scheduling medical appointments or paying for predictable expenses before your last day.

If your new employer offers an FSA, you can open a new account there and start contributing in the next plan year. The two accounts are completely separate; there is no carryover between employers.

FSA versus other ways to save on medical costs

An FSA is different from a Health Savings Account (HSA), which is only available if you have a high-deductible health plan. An HSA has higher contribution limits ($4,150 for individual coverage in 2024), the money rolls over year to year, and you can keep it even if you change jobs. However, you can only use an HSA if your insurance plan qualifies, whereas an FSA works with any health plan.

An FSA is also different from health insurance. Insurance covers large medical events like hospitalizations and surgeries. An FSA covers the out-of-pocket costs you pay after insurance—copays, deductibles, and uncovered services. You need both to manage healthcare costs fully.

If you do not have an FSA through your employer, you cannot open one on your own. FSAs are only available through employers. If your employer does not offer one, you have no FSA option unless you change jobs.

Frequently Asked Questions

Can I use my FSA for my spouse or children?

A medical FSA covers only you and your dependents on your health insurance plan. If your spouse has their own job and their own FSA, they must use their own account for their own expenses. Dependent care FSAs cover childcare for your children under 13, but not for your spouse's care.

What if I estimate wrong and contribute too much?

If you contribute more than you spend, you lose the leftover money at the end of the year. There is no refund or rollover in most plans. This is why many people contribute conservatively. If your plan offers a grace period or carryover, you have a small window to use the money or keep it.

Can I change my FSA contribution mid-year?

No, unless you have a may have access to life event like marriage, birth, adoption, loss of coverage, or a major change in childcare costs. Job changes, raises, or changes in health do not may have access to. You must wait until the next open enrollment period to adjust your contribution.

Do I need receipts to use my FSA debit card?

Not at the point of purchase, but you should keep receipts. The FSA administrator may ask for documentation later to verify that the purchase was FSA-may be able to access. If you cannot provide proof, you may have to repay the amount.

What happens if I submit a claim for a non-covered expense?

The FSA administrator will deny the claim and you will not be reimbursed. If you already paid out of pocket, you lose that money. This is why it is important to check the covered expenses list before you incur a cost you think might be covered.