FSA health accounts let you set aside pre-tax money from your paycheck to pay for medical expenses your insurance doesn't cover

A Flexible Spending Account (FSA) for health is a workplace benefit that lets you put money aside before taxes are taken out. You use that money to pay for medical costs — copays, deductibles, prescriptions, dental work, vision care, and other out-of-pocket expenses. The main advantage is that the money you contribute reduces your taxable income, which lowers what you owe in federal income tax and payroll taxes.

FSAs are offered through your employer's benefits plan, not through the government or insurance company. Your employer sets up the account, you decide how much to contribute each year, and the money sits in an account you control. You pay medical providers from that account, either by submitting receipts for reimbursement or by using a debit card tied to the account.

The catch is the use-it-or-lose-it rule: money you don't spend by the end of the plan year (usually December 31) goes back to your employer. You cannot carry it over to the next year, with rare exceptions. This makes choosing the right contribution amount important — you want to set aside enough to cover predictable medical costs, but not so much that you forfeit unused funds.

Key Takeaways

  • FSA money comes from your paycheck before taxes, which reduces your federal income tax and payroll taxes for that year.
  • You can use FSA funds for copays, deductibles, prescription drugs, dental care, vision care, and many other medical expenses your insurance does not cover.
  • Money left unspent at the end of the plan year is forfeited to your employer — you cannot roll it over unless your employer offers a grace period or carryover option.
  • You must enroll during your employer's open enrollment period each year, and contribution amounts are locked in for the full plan year.
  • FSAs are separate from Health Savings Accounts (HSAs) and are available to employees regardless of their health insurance plan type.

What expenses you can pay for with FSA money

FSA funds cover a wide range of medical, dental, and vision costs. The IRS publishes a list of may have access to medical expenses, and your employer's plan document specifies which ones their FSA covers. Common covered expenses include doctor copays, emergency room visits, prescription medications, insulin, glasses and contacts, dental cleanings and fillings, orthodontia, hearing aids, and physical therapy.

Some expenses are covered by FSA but not by all insurance plans — for example, over-the-counter pain relievers, allergy medications, and antacids now may have access to under federal rules. Dental work like crowns, root canals, and extractions is covered. Vision expenses include eye exams, glasses, contact lenses, and laser eye surgery.

Expenses that do not may have access to include cosmetic procedures (unless medically necessary), gym memberships, vitamins and supplements (unless prescribed by a doctor), and most over-the-counter items that are not medications. Your employer's benefits administrator can tell you which specific expenses their plan covers, since some employers restrict the list beyond the federal minimum.

How much you can contribute and when

The IRS sets an annual limit on FSA contributions. For 2024, the limit is $3,200 per person per year. This limit changes each year and is adjusted for inflation. You decide how much to contribute within that limit, and the amount is deducted from your paycheck in equal installments throughout the year.

You can only change your contribution amount during your employer's open enrollment period, which is usually once per year in the fall for a plan year starting January 1. Outside of open enrollment, you can change your contribution only if 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 your medical needs.

If you leave your job mid-year, you typically lose access to your FSA account. Some employers allow you to continue using the account through the end of the plan year, but this varies. Check with your employer's human resources or benefits department about their specific rules.

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

At the end of each plan year, any money remaining in your FSA account is forfeited. You do not get a refund, and the money does not roll over to the next year. This is why choosing the right contribution amount matters — you need to estimate your medical expenses accurately to avoid leaving money on the table.

Some employers offer a grace period of up to 2.5 months into the next plan year, during which you can spend the previous year's leftover funds. Other employers allow a limited carryover of up to $610 (as of 2024) into the next year. Not all employers offer either option, so check your plan documents or ask your benefits administrator what applies to your account.

If you are unsure whether you will use all your FSA money, it is safer to contribute a smaller amount. You can always use other money to pay medical expenses if your FSA runs out, but you cannot recover forfeited FSA funds.

How to submit expenses and get reimbursed

Most FSAs issue a debit card that you can use at pharmacies, doctors' offices, and other medical providers. When you use the card, the expense is deducted from your account balance automatically. Some providers may ask you to submit a receipt afterward to verify the expense was medical in nature.

If you pay out of pocket, you can submit a claim for reimbursement. You will need to provide a receipt or explanation of benefits (EOB) from your provider showing the date, amount, and type of service. Your employer's benefits administrator or FSA plan manager has a website or app where you can upload receipts and request reimbursement. Reimbursement typically takes one to two weeks.

Keep all receipts and documentation for at least three years. The IRS can audit FSA accounts, and you may need to prove that expenses were may have access to medical costs. Your FSA plan administrator may also request documentation to verify claims.

FSA versus HSA: key differences

FSAs and Health Savings Accounts (HSAs) are both tax-advantaged accounts for medical expenses, but they work differently. An FSA is offered through your employer and is available to any employee, regardless of health insurance type. An HSA is only available if you are enrolled in a high-deductible health plan (HDHP), and you can open one on your own or through your employer.

The biggest difference is that HSA money rolls over year to year and grows like a savings account. FSA money is use-it-or-lose-it. HSAs also allow you to invest the money in stocks and bonds, while FSAs typically sit in a cash account. However, FSAs have higher annual contribution limits than HSAs in most cases.

You cannot have both an FSA and an HSA in the same year, with one exception: some employers offer a limited-purpose FSA that covers only dental and vision expenses, which can be paired with an HSA. If you have access to both accounts, compare the contribution limits, your expected medical expenses, and your employer's matching or funding to decide which makes sense for you.

Frequently Asked Questions

Can I use my FSA debit card at any doctor or pharmacy?

Most major pharmacies and medical providers accept FSA debit cards, but not all do. Some smaller practices or specialists may not have the infrastructure to process FSA payments. If a provider does not accept the card, you can pay out of pocket and submit a receipt for reimbursement through your FSA plan's website or app.

What happens to my FSA if I change jobs?

Your FSA account is tied to your employer, so you lose access when you leave the job. You have until the end of the plan year to submit any remaining claims for expenses you incurred while employed. After that, any unspent money is forfeited. If your new employer offers an FSA, you can enroll during their open enrollment period, but you start with a new account and a new contribution limit.

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

Yes, as long as they are claimed as dependents on your tax return. You can use your FSA to pay for your spouse's and children's copays, prescriptions, dental work, and other may have access to medical expenses. The expenses must be for people you legally claim as dependents.

What if I contribute too much and do not spend it all?

The money is forfeited at the end of the plan year. Some employers offer a grace period or carryover option that lets you spend or roll over a small amount into the next year, but this is not may provide. If your employer does not offer either option, the best strategy is to contribute conservatively based on your predictable medical expenses.

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

No. If you withdraw money for non-may have access to expenses, you will owe income tax on that amount plus a 20 percent penalty. The only exception is if you have a may have access to life event that allows you to stop contributing and withdraw your balance, but even then, you can only withdraw money for expenses incurred before the withdrawal date.