An FSA plan is a workplace account where you set aside pre-tax money to pay for medical expenses your insurance doesn't cover

A Flexible Spending Account (FSA) is a benefit your employer may offer alongside health insurance. You decide how much money to contribute each year — up to a legal limit set by the IRS — and that money comes out of your paycheck before taxes are calculated. You then use the account to pay for medical, dental, or vision expenses out of pocket. The main advantage is the tax savings: money in an FSA is not subject to federal income tax, Social Security tax, or Medicare tax.

FSAs are not health insurance. They work alongside insurance to cover costs that insurance does not pay for: copays, deductibles, coinsurance, dental work, glasses, hearing aids, and certain over-the-counter items. You control the account and decide how much to contribute based on what you expect to spend in the coming year.

Key Takeaways

  • FSA contributions come from your paycheck before taxes, so you pay less in federal and payroll taxes on the money you set aside.
  • You can use FSA funds for copays, deductibles, dental work, vision care, and certain over-the-counter medical items that your insurance does not cover.
  • The IRS sets a yearly contribution limit, which changes annually and varies based on whether you have individual or family coverage.
  • Money left in your FSA at the end of the year is forfeited — you cannot roll it over to the next year, so you must estimate carefully what you will spend.
  • You can only enroll in or change your FSA during your employer's open enrollment period, or if you have a may have access to life event like marriage or birth.

How much you can contribute each year

The IRS sets a maximum contribution limit for FSAs, and that limit changes each year. For 2024, the limit is $3,200 per person per year. For 2025, it is $3,300. Your employer may set a lower limit, so check your plan documents or ask your benefits administrator what your company allows.

You choose your contribution amount during your employer's open enrollment period, usually in the fall for benefits that start January 1. The money is divided evenly across your paychecks for the year. If you earn $3,200 and get paid every two weeks, roughly $123 comes out of each paycheck and goes into your FSA.

What expenses you can pay for with FSA funds

FSA money can cover a wide range of medical, dental, and vision costs. Copays and coinsurance on your health insurance plan are covered. Deductibles are covered. Dental work — fillings, crowns, orthodontia, cleanings — is covered. Eyeglasses, contact lenses, and eye exams are covered. Hearing aids and batteries are covered.

Some over-the-counter items are also covered: pain relievers, allergy medicine, antacids, cold medicine, and topical creams. Prescription medications are covered. Medical equipment like crutches, wheelchairs, and blood pressure monitors is covered. Therapy copays, mental health visits, and physical therapy are covered. The IRS maintains a detailed list of what qualifies, and your plan administrator can tell you whether a specific item is allowed.

FSA funds cannot pay for health insurance premiums, cosmetic procedures, or general wellness items like vitamins or gym memberships. They also cannot pay for long-term care insurance or certain types of dental work that are purely cosmetic.

How to use your FSA card or request reimbursement

Most FSAs issue a debit card that you can use at pharmacies, doctors' offices, and medical supply stores. You swipe the card like a credit card, and the charge comes out of your FSA balance. Some FSAs require you to pay out of pocket and then submit a receipt to the plan administrator for reimbursement. Your employer will tell you which method your plan uses.

If you use the reimbursement method, keep your receipts and submit them through your plan's website or app, or by mail. The plan administrator reviews the receipt to confirm the expense is FSA-may be able to access, then sends you a check or deposits the money into your bank account. This usually takes one to two weeks.

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

Money left in your FSA at the end of the calendar year is forfeited. You cannot roll it over to the next year, and you cannot get a refund. This is called the use-it-or-lose-it rule, and it is a major reason to estimate your spending carefully before you contribute.

Some employers offer a grace period of up to 2.5 months into the next year to spend down your FSA balance. A few employers offer a carryover of up to $640 (for 2024) into the next year, though this is less common. Check your plan documents or ask your benefits administrator whether your employer offers either option. If they do not, any unspent money is gone.

When you can enroll or make changes

You can enroll in an FSA or change your contribution amount only during your employer's open enrollment period, which is usually once per year in the fall. Outside of open enrollment, you cannot change your FSA contribution unless you have a may have access to life event.

may have access to life events include marriage, divorce, birth or adoption of a child, loss of other health coverage, a significant change in your spouse's benefits, or a change in your employment status. You typically have 30 to 60 days after the event to notify your employer and make changes. If you miss the window, you are locked into your current contribution for the rest of the year.

FSA vs. HSA: key differences

An HSA (Health Savings Account) is similar to an FSA but works differently. Both let you set aside pre-tax money for medical expenses. The main differences are: HSA money rolls over year to year and never expires, while FSA money is forfeited if unused. HSAs require you to be enrolled in a high-deductible health plan, while FSAs work with any health plan. HSAs have higher contribution limits than FSAs. HSAs can be invested like a retirement account, while FSAs cannot.

If your employer offers both, an HSA is usually the better choice because you keep the money and it grows over time. If your employer offers only an FSA, or if you are not may be able to access for an HSA, an FSA is still a good way to save on taxes for predictable medical expenses.

Frequently Asked Questions

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

You lose access to your FSA balance when you leave your employer. You cannot take the money with you or transfer it to a new employer's FSA. You may be able to continue your FSA for a limited time under COBRA, which lets you keep the account but you pay the full premium yourself. Check with your former employer's benefits administrator about COBRA options.

Can I use my FSA for my spouse or children?

Yes. You can use FSA funds to pay for medical expenses for your spouse and any dependent children, even if they are not covered under your health insurance plan. The expense must still be FSA-may be able to access, and you must have a receipt showing the expense was incurred.

Do I need receipts to use my FSA card?

If you use an FSA debit card, you usually do not need to show a receipt at the time of purchase. However, the plan administrator may ask you to submit receipts later to verify that charges were for FSA-may be able to access expenses. Keep all receipts for at least three years in case you are audited.

Can I change my FSA contribution mid-year?

No, unless you have a may have access to life event like marriage, birth, or loss of other coverage. Outside of those events, your contribution is locked in for the entire year. If you realize you chose the wrong amount, you must wait until the next open enrollment period to make a change.

What if I contribute too much and cannot spend it all?

The money is forfeited at the end of the year unless your employer offers a grace period or carryover. The best strategy is to estimate conservatively — add up what you spent on medical expenses last year, then contribute slightly less. It is better to leave money on the table than to lose it.