A health care spending account lets you set aside pre-tax money from your paycheck to pay for medical expenses your insurance doesn't cover

A Health Care Spending Account (also called a Flexible Spending Account or FSA) is an employer-sponsored account where you contribute money before taxes are taken out of your paycheck. You then use that money to pay for out-of-pocket medical, dental, and vision costs. Because the money goes in before taxes, you pay less in federal income tax and payroll taxes — which means you keep more of your earnings.

The account is "use it or lose it," meaning any money you don't spend by the end of the plan year (usually December 31) goes back to your employer. Some plans offer a grace period of up to 2.5 months into the next year, or let you carry over up to $610 (the amount changes yearly). You control how much to contribute each year, and your employer deducts that amount from your paychecks in equal installments.

Key Takeaways

  • You contribute pre-tax money to your FSA through payroll deductions, which lowers your taxable income and the taxes you owe.
  • You can use FSA funds to pay for copays, deductibles, prescriptions, dental work, vision care, and other medical expenses your insurance doesn't fully cover.
  • Money left in your account at the end of the plan year is forfeited unless your plan offers a grace period or carryover option.
  • You choose your contribution amount once a year during your employer's open enrollment period, and you cannot change it mid-year unless you have a may have access to life event.
  • FSA funds are separate from your health insurance and work alongside it to reduce your out-of-pocket costs.

What expenses you can pay for with FSA money

FSA funds cover a broad range of medical, dental, and vision costs. You can use the money for copays and coinsurance (your share of the cost after insurance pays), deductibles, prescription medications, and over-the-counter drugs that require a prescription from your doctor. Dental expenses like cleanings, fillings, root canals, and orthodontia are covered. Vision care including eye exams, glasses, contact lenses, and laser eye surgery also may have access to.

Other common expenses include hearing aids and batteries, medical equipment like crutches or blood pressure monitors, mental health counseling, physical therapy, and certain medical procedures. The IRS maintains a detailed list of what qualifies, and your plan administrator can tell you whether a specific expense is covered. If you are unsure, ask before you spend the money — you cannot get a refund for ineligible expenses.

How much you can contribute each year

The IRS sets a maximum contribution limit that changes yearly. For 2024, the limit is $3,200 per person (this amount increases periodically). You decide how much to contribute during your employer's open enrollment period, usually in the fall for a plan year starting January 1. Your employer then deducts that amount from your paychecks in equal portions throughout the year.

The contribution limit applies to you as an individual, not to your household. If you are married and both you and your spouse have access to an FSA through your employers, you each can contribute up to the limit. If you both work for the same employer, you still each have your own account and limit. Choose your contribution carefully — you cannot increase or decrease it mid-year unless you have a may have access to life event like a birth, marriage, divorce, or loss of coverage.

When you lose access to your FSA money

The main risk of an FSA is the use-it-or-lose-it rule. Any money remaining in your account on December 31 (or at the end of your plan year) reverts to your employer. You do not get a refund, and you cannot roll the money into the next year — with two exceptions. Some employers offer a grace period of up to 2.5 months into the following year to spend remaining funds. Others allow you to carry over up to $610 (adjusted yearly) into the next plan year. Check your plan documents to see which option your employer offers.

You also lose access to your FSA if you leave your job. Some employers let you continue using the account through the end of the plan year if you resign or are laid off, but this varies. If you are fired or resign, ask your HR department whether you can still access your FSA funds. If you are covered under COBRA (the law that lets you keep health insurance after leaving a job), you may be able to continue your FSA as well, though you will pay the full premium yourself.

How to submit receipts and get reimbursed

When you use your FSA debit card at a pharmacy, doctor's office, or dental practice, the transaction is usually processed automatically and the money comes out of your account. For other expenses, you may need to submit a claim. Keep all receipts and documentation — your plan administrator will ask for proof that the expense was medical and that you actually paid it.

Most FSA plans let you submit claims online through a website or mobile app, by mail, or by phone. You typically have 60 to 90 days after the expense to file a claim. If your claim is denied, the plan administrator will tell you why and give you a chance to appeal. Do not throw away receipts until you are certain the claim has been processed and approved.

How an FSA differs from an HSA

An HSA (Health Savings Account) and an FSA are both tax-advantaged accounts, but they work differently. An HSA is only available if you are enrolled in a high-deductible health plan (HDHP), and you can carry unused money forward indefinitely — there is no use-it-or-lose-it rule. An HSA also earns interest or investment returns on the balance, and you can withdraw money for non-medical expenses after age 65 (though you will pay income tax on those withdrawals).

An FSA does not require a high-deductible plan and is available to more people, but you must spend the money within the plan year or lose it. An FSA also does not earn interest. If your employer offers both, you cannot contribute to both in the same year — you must choose one. An HSA is generally better if you expect to have ongoing medical expenses and want to save money long-term. An FSA is better if you have predictable near-term costs and want to reduce your taxes this year.

Choosing the right contribution amount

The hardest part of using an FSA is deciding how much to contribute without leaving money behind. Start by adding up your expected medical, dental, and vision costs for the year. Include copays for regular doctor visits, prescriptions you take regularly, dental cleanings and any planned work, and eye exams or new glasses. Be conservative — it is better to contribute less and not use all your money than to contribute too much and forfeit the balance.

If you have a spouse or dependents, remember that only your own out-of-pocket costs count toward your FSA limit. Your spouse's medical expenses do not reduce your contribution. If your costs vary year to year, look at what you spent in the past two years and use that as a guide. You can change your contribution amount next year during open enrollment, so if you make a mistake this year, you can adjust it then.

Frequently Asked Questions

Can I use my FSA for my spouse's or children's medical expenses?

Yes, you can use your FSA to pay for medical expenses of your spouse and dependents, as long as they are claimed as dependents on your tax return. The money in your account is not limited to your own care — it covers anyone in your household you claim as a dependent.

What happens to my FSA if I change jobs?

When you leave your job, you lose access to your FSA. Some employers let you use remaining funds through the end of the plan year, but this is not may provide. If you are covered under COBRA, you may be able to continue your FSA by paying the full premium yourself. Check with your former employer's HR department about your options.

Can I use FSA money for gym memberships or vitamins?

No. Gym memberships and general wellness expenses do not may have access to. Over-the-counter vitamins and supplements are not covered unless your doctor prescribes them for a specific medical condition. Prescription medications and medically necessary equipment are covered, but preventive or general health products are not.

What if I do not spend all my FSA money by the end of the year?

Any unused balance is forfeited and goes back to your employer. Some plans offer a grace period (usually 2.5 months into the next year) to spend remaining funds, or allow you to carry over up to $610 into the next plan year. Check your plan documents to see which option applies to you.

Can I withdraw FSA money for non-medical expenses?

No. FSA funds can only be used for may have access to medical expenses. If you withdraw money for other purposes, you will owe income tax on that amount plus a 20 percent penalty. Unlike an HSA, an FSA has no exceptions for non-medical withdrawals.