A Flexible Spending Account lets you set aside pre-tax money from your paycheck to pay for medical expenses your insurance doesn't cover

A Flexible Spending Account (FSA) is an employer-sponsored plan where you contribute money before taxes are taken out, then use that money to pay for may have access to healthcare costs. The main benefit is that you avoid federal income tax, Social Security tax, and Medicare tax on the money you set aside — which typically saves you 20 to 40 percent depending on your tax bracket.

You decide how much to contribute each year during your employer's open enrollment period, usually in the fall. That money goes into an account, and you pay for may be able to access medical expenses out of pocket, then either get reimbursed or use a debit card tied to the account. The catch is that any money you don't use by the end of the plan year is forfeited — you cannot roll it over to the next year or take it with you.

Key Takeaways

  • You contribute pre-tax dollars, which reduces the amount of income tax you owe and saves you money on Social Security and Medicare taxes.
  • You can use FSA money for copays, deductibles, prescriptions, dental work, vision care, and other costs your health insurance does not cover.
  • Money left in your account at the end of the plan year is forfeited, so you need to estimate carefully how much you will actually spend.
  • You must enroll during your employer's open enrollment window, and changes outside that window are limited to life events like marriage, birth, or loss of coverage.
  • If you leave your job, you typically have 60 days to spend remaining FSA funds or lose them.

What expenses you can pay for with an FSA

The IRS maintains a list of may have access to medical expenses that FSA money can cover. These include copays and coinsurance, deductibles, prescription medications, insulin, and medical equipment like crutches or blood pressure monitors. Dental work, vision care, and hearing aids also count.

Some expenses that seem medical but do not may have access to include cosmetic procedures, over-the-counter medications (unless prescribed by a doctor), vitamins, gym memberships, and weight-loss programs. Sunscreen, toothpaste, and most personal hygiene items are not covered. If you are unsure whether a specific expense qualifies, your plan administrator or the IRS website can confirm before you spend the money.

How much you can contribute and the annual limit

For 2024, the maximum you can contribute to an FSA is $3,200 per year. This limit is set by the IRS and changes occasionally. Your employer may set a lower limit, so check your plan documents to see what your company allows.

You decide the amount during open enrollment, and it is deducted from your paycheck in equal installments throughout the year. If you have a spouse who also works and whose employer offers an FSA, you can each open your own account up to the individual limit — you cannot combine them into one account.

The use-it-or-lose-it rule and the grace period

Money left in your FSA at the end of the plan year does not roll over. If you contribute $2,500 and spend only $2,000, the remaining $500 is forfeited. This is the biggest risk of an FSA: you have to predict your medical spending accurately, or you lose money.

Some employers offer a grace period of up to 2.5 months into the next year to spend the previous year's unused funds. Not all plans include this, so ask your employer whether yours does. A few employers also offer a carryover of up to $610 (for 2024) into the next year, but this is less common. Check your plan documents to see what applies to you.

How to claim reimbursement or use your FSA debit card

Most FSAs issue a debit card that you can swipe at pharmacies, doctors' offices, and other healthcare providers. The card draws directly from your FSA balance. You do not have to submit receipts every time, though you should keep them in case the plan administrator asks for proof later.

If your plan does not offer a debit card, or if you pay out of pocket, you can submit a reimbursement request to your plan administrator. You will need to provide an itemized receipt or explanation of benefits showing the date, provider, and amount. Reimbursement typically takes one to two weeks. Some employers use a third-party administrator to manage FSAs, and they usually have an online portal or mobile app where you can submit claims.

FSA vs. Health Savings Account (HSA): which is right for you

An HSA is similar to an FSA but has different rules. An HSA requires you to be enrolled in a high-deductible health plan, allows you to carry money over year to year, and lets you invest the funds. An FSA has no investment option, requires you to spend or lose the money each year, but does not require a high-deductible plan.

If your employer offers both, an HSA is usually better for long-term savings because the money does not expire. An FSA makes sense if you have predictable medical expenses each year and want to reduce your taxes on money you know you will spend. Some people use both: they contribute to an HSA for long-term savings and a smaller amount to an FSA for near-term costs.

What happens to your FSA if you change jobs or lose coverage

If you leave your job, your FSA ends. You typically have 60 days to submit claims for expenses you incurred while enrolled, and you can use any remaining balance during that window. After 60 days, any unspent money is forfeited and goes back to your employer.

If you are laid off or your hours are cut and you lose health insurance, you may be able to continue your FSA under COBRA, though you will pay the full premium yourself. Some employers allow you to reduce your FSA contribution mid-year if you have a may have access to life event like the birth of a child, marriage, or divorce. Outside of those events, you are locked into your contribution amount until the next open enrollment.

Frequently Asked Questions

Can I use my FSA for my spouse or children?

Yes, you can use FSA funds to pay for may have access to medical expenses for your spouse and any dependents you claim on your taxes, even if they are not covered under your health insurance plan. The money belongs to the account holder, but the expenses must be for family members you support.

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

Any unused balance is forfeited unless your employer offers a grace period or carryover. A grace period typically gives you 2.5 additional months to spend the previous year's funds. Check your plan documents or ask your benefits administrator whether your plan includes this option.

Can I withdraw money from my FSA for non-medical expenses?

No. Withdrawing FSA funds for non-may have access to expenses triggers taxes on that amount plus a 20 percent penalty. The only exception is if you have a may have access to life event that ends your coverage, in which case you can withdraw unused funds without penalty.

Do I need to submit receipts every time I use my FSA debit card?

Not immediately, but you should keep receipts. The plan administrator may ask for proof that expenses were may have access to, especially if there is a question about whether something is covered. Keeping organized records makes the reimbursement process faster if you need to submit a claim.

Can I change my FSA contribution amount during the year?

Only if you have a may have access to life event such as marriage, divorce, birth of a child, adoption, loss of other health coverage, or a significant change in your employer's plan. Outside of these events, your contribution is locked in until the next open enrollment period.