A Flexible 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 workplace benefit that lets you put money aside before taxes are taken out, then use that money to pay for certain healthcare and dependent care expenses. Your employer deducts the amount you choose directly from your paycheck throughout the year, and you can withdraw from the account to cover costs as they happen.

The main advantage is the tax savings: money in an FSA is not subject to federal income tax, Social Security tax, or Medicare tax. If you set aside $2,500 in an FSA and you are in the 22% tax bracket, you save roughly $550 in taxes on that money. You only pay for expenses you actually use the account for, and you control how much to contribute each year.

FSAs are offered by many employers as part of their benefits package, but not all. You cannot open an FSA on your own — it must be through your workplace. If your employer offers one, you typically enroll during open enrollment, which usually happens once a year in the fall.

Key Takeaways

  • FSA money comes from your paycheck before taxes, so you save on federal income tax, Social Security tax, and Medicare tax on the amount you contribute.
  • You can use FSA funds to pay for medical expenses like copays, deductibles, prescriptions, and dental work, plus dependent care like daycare or after-school programs.
  • You must choose how much to contribute each year during open enrollment, and that money is set aside for that year only — you cannot carry it forward to the next year in most cases.
  • FSAs are only available through employers, and you lose access to the account if you leave your job or your employer stops offering the plan.

What expenses you can pay for with FSA money

FSAs come in two types: a healthcare FSA and a dependent care FSA. Most employers offer one or both.

A healthcare FSA covers medical expenses that you would otherwise pay out of pocket. This includes copays and coinsurance for doctor visits, prescription medications, dental work, vision care, hearing aids, and medical equipment like crutches or blood pressure monitors. It also covers some over-the-counter items if you have a prescription from your doctor — for example, over-the-counter pain relievers or allergy medicine with a prescription. The IRS publishes a detailed list of what counts, and your plan documents will tell you what your specific employer's FSA covers.

A dependent care FSA covers costs for childcare, after-school programs, summer camps, and adult day care for a dependent you claim on your taxes. It does not cover education costs like tuition or school supplies, and it does not cover overnight camps. The dependent care FSA has an annual contribution limit that is lower than the healthcare FSA limit.

You cannot use FSA money for health insurance premiums, long-term care insurance, or cosmetic procedures. If you are unsure whether a specific expense qualifies, ask your plan administrator before you spend the money — using FSA funds for ineligible expenses means you have to pay taxes on that money retroactively.

How much you can contribute and annual limits

The IRS sets a maximum amount you can contribute to a healthcare FSA each year. For 2024, the limit is $3,200. For dependent care FSAs, the limit is $5,000 per year for married couples filing jointly or single filers, and $2,500 for married couples filing separately. These limits change most years, so check with your employer's benefits office for the current year's cap.

You choose your contribution amount during open enrollment, and that money is deducted from your paycheck in equal installments throughout the year. If you contribute $2,400 to a healthcare FSA, your employer divides that by the number of pay periods and deducts it from each check. You do not have to contribute the maximum — you can choose any amount up to the limit that fits your budget.

One important rule: money left in your FSA at the end of the year is forfeited. This is called the "use-it-or-lose-it" rule. If you contribute $2,000 and only spend $1,500, you lose the remaining $500. Some employers offer a grace period of up to 2.5 months into the next year to spend down your balance, or a carryover of up to $610 (for 2024), but this is optional and not all employers offer it. Check your plan documents to see if your employer allows either option.

How to access and use your FSA funds

Most FSAs come with a debit card that you can use at pharmacies, doctor's offices, and other healthcare providers. When you swipe the card, the amount is deducted from your FSA balance. Some plans require you to submit receipts to prove the expense was may be able to access, especially for larger purchases or items bought at stores that are not typically medical providers.

If your FSA does not have a debit card, or if you pay out of pocket, you can submit a claim form with your receipt to your plan administrator and request reimbursement. This usually takes one to two weeks. Keep all receipts and documentation — your plan administrator may ask for proof that an expense was may be able to access, and you need records for your own tax purposes.

You can only access your FSA funds during the plan year it was contributed to. If you leave your job mid-year, you typically lose access to the remaining balance, though some employers allow you to continue using the account through the end of the plan year under COBRA rules. Check with your employer's benefits office about what happens to your FSA if you resign or are laid off.

FSA vs. Health Savings Account (HSA): key differences

FSAs and HSAs are both tax-advantaged accounts for healthcare costs, but they work differently. An FSA is offered by your employer and has the use-it-or-lose-it rule. An HSA is paired with a high-deductible health plan, can be opened on your own, and money rolls over year to year — you never lose it. HSAs also allow you to invest the money, while FSAs do not.

If your employer offers both, you cannot contribute to both in the same year. You have to choose one. An HSA is better if you want to save money long-term and do not spend much on healthcare. An FSA is better if you have predictable medical expenses each year and want to save on taxes without worrying about investment decisions.

Some employers offer an FSA alongside an HSA if the FSA is limited to dependent care only. In that case, you can use both accounts in the same year.

What happens to your FSA when you change jobs or leave employment

When you leave your job, you lose access to your FSA immediately in most cases. Any money remaining in the account is forfeited — your employer does not refund it to you. This is one of the biggest drawbacks of FSAs: you cannot take the account with you.

Some employers allow you to continue using your FSA through the end of the plan year if you leave during the year, but only if you pay the premiums yourself under COBRA. This is rare and usually only applies to healthcare FSAs, not dependent care FSAs. Ask your employer's benefits office about COBRA continuation before you resign.

If you are laid off or your employer stops offering FSAs, you may have a limited time to spend down your balance or request reimbursement for expenses you already incurred. The rules vary by employer and plan, so contact your plan administrator right away if this happens to you.

Frequently Asked Questions

Can I change my FSA contribution amount during the year?

No, in most cases. You choose your contribution amount during open enrollment and it stays the same for the entire plan year. However, you can change your contribution if you have a may have access to life event — marriage, divorce, birth of a child, loss of other health coverage, or significant change in childcare costs. You must request the change within 30 to 60 days of the event, depending on your employer's rules.

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

You lose it. This is the use-it-or-lose-it rule. Some employers offer a grace period of up to 2.5 months into the next year to spend remaining funds, or allow you to carry over up to $610 (for 2024), but this is optional. Check your plan documents. To avoid losing money, estimate your expenses carefully before you contribute.

Can I use my FSA debit card at any store?

No. FSA debit cards only work at pharmacies, doctor's offices, dental offices, and other healthcare providers. If you try to use it at a grocery store or general retailer, it will be declined. Some stores have pharmacy sections where the card may work, but only for may be able to access items like over-the-counter medications with a prescription.

What happens if I submit a claim for an ineligible expense?

If you use FSA funds for an ineligible expense, you have to pay income tax on that amount retroactively. Your plan administrator may also ask you to repay the amount. Keep receipts and check the IRS list of may be able to access expenses before you spend FSA money on anything you are unsure about.

Can I open an FSA if my employer does not offer one?

No. FSAs are only available through employers. You cannot open one on your own. If your employer does not offer an FSA, you may be able to open a Health Savings Account (HSA) if you are enrolled in a high-deductible health plan, or you can pay for medical expenses out of pocket with after-tax money.