What an FSA healthcare account is

A Flexible Spending Account (FSA) for healthcare is a workplace benefit that lets you set aside pre-tax money to pay for medical expenses. Your employer deducts the amount you choose directly from your paycheck before taxes are calculated, which lowers your taxable income for the year. You then use that money to pay for may be able to access healthcare costs out of pocket.

The account is not a health insurance plan — it works alongside whatever insurance you already have. It is a way to pay for costs that insurance does not cover fully, like copays, deductibles, prescription costs, and certain medical equipment or services.

FSA healthcare accounts are offered by employers as part of their benefits package. You can only open one if your employer offers it, and you can only contribute during your company's open enrollment period, which is usually once a year.

Key Takeaways

  • An FSA healthcare account holds pre-tax money you set aside to pay for medical expenses, lowering your taxable income.
  • You choose how much to contribute each year during your employer's open enrollment period, and the money is deducted from your paycheck.
  • may be able to access expenses include copays, deductibles, prescription medications, dental work, vision care, and certain medical equipment and supplies.
  • Money left in your account at the end of the year is forfeited — you cannot carry it over to the next year, with rare exceptions.
  • You access the money by submitting receipts to your FSA plan administrator or using a debit card linked to the account.

How much you can contribute and when

The maximum amount you can contribute to an FSA healthcare account changes each year. For 2024, the limit is $3,200 per year. Your employer may set a lower limit, so check your benefits materials to see what your company allows.

You decide how much to contribute during open enrollment, which typically happens once a year in the fall for coverage starting January 1. Once you choose an amount, you are locked into that contribution for the entire year — you cannot change it unless you have a may have access to life event, such as a birth, marriage, divorce, loss of other insurance, or a significant change in your household income.

The money is deducted from your paycheck in equal amounts throughout the year. Because the deduction happens before taxes, you pay less in federal income tax and Social Security tax, which means you keep more of your overall earnings.

What healthcare costs you can pay with FSA money

FSA funds can be used for a wide range of medical, dental, and vision expenses. may be able to access costs include copays and coinsurance, deductibles, prescription medications, over-the-counter medications (with a prescription from your doctor), dental cleanings and procedures, eyeglasses and contact lenses, hearing aids, and certain medical equipment like blood pressure monitors or glucose meters.

Some expenses are not covered. You cannot use FSA money for health insurance premiums, cosmetic procedures, gym memberships, or vitamins and supplements unless they are prescribed by a doctor for a specific medical condition. Expenses for your spouse or dependents are covered only if they are claimed on your tax return.

The IRS maintains a detailed list of may be able to access expenses. If you are unsure whether a specific cost qualifies, ask your FSA plan administrator before you spend the money — they can tell you whether your expense is covered under your plan.

How to use the money in your account

Most FSA plans give you a debit card linked to your account. You can use it at pharmacies, doctor offices, and other healthcare providers that accept it. The card automatically deducts the cost from your FSA balance.

If your plan does not offer a debit card, or if a provider does not accept it, you can pay out of pocket and then submit a claim. You will need to send your receipt and a claim form to your FSA plan administrator, and they will reimburse you. This process usually takes one to two weeks.

Keep all receipts and documentation. Your plan administrator may ask you to prove that an expense was may be able to access, especially for items like over-the-counter medications or medical equipment. Having receipts on hand makes the reimbursement process faster.

The use-it-or-lose-it rule and exceptions

Money left in your FSA at the end of the year does not roll over to the next year — it is forfeited. This is called the use-it-or-lose-it rule, and it applies to most FSA plans. This rule exists because FSAs are tax-advantaged accounts, and federal law limits how long the money can sit unused.

There are two limited exceptions. Some employers offer a grace period of up to two and a half months into the new year, during which you can spend money from the previous year's account. Other employers allow a carryover of up to $610 (in 2024) to the next year's account, though not all plans offer this option.

Because of this rule, it is important to estimate your healthcare costs carefully when you choose your contribution amount. If you overestimate and do not spend the money, you lose it. If you underestimate, you will have to pay out of pocket for costs that an FSA could have covered.

FSA healthcare versus other workplace health accounts

Employers may offer other tax-advantaged health accounts alongside or instead of an FSA. A Health Savings Account (HSA) is similar to an FSA but is only available if you have a high-deductible health insurance plan. Unlike an FSA, HSA money rolls over year to year and can be invested, making it a longer-term savings tool.

A Dependent Care FSA is a separate account for childcare and elder care expenses, not medical costs. Some employers offer both a healthcare FSA and a dependent care FSA, and you can contribute to both in the same year, though each has its own contribution limit.

If your employer offers an HSA, you cannot also contribute to a healthcare FSA in the same year — federal law does not allow both. You will need to choose which account makes sense for your situation.

Frequently Asked Questions

Can I open an FSA healthcare account on my own, without an employer?

No. FSA healthcare accounts are only available through employers. If your employer does not offer one, you cannot open an FSA on your own. Some self-employed people use an HSA instead if they have a high-deductible health plan, or they pay for medical expenses out of pocket.

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

You lose access to the money in your FSA when you leave your job. However, federal law allows you to continue coverage under COBRA for a limited time, which includes your FSA. You would need to pay the full cost yourself, but you could continue using the remaining balance. Check with your former employer's benefits administrator for details on COBRA coverage for your FSA.

Can I use FSA money to pay for my spouse's 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 their copays, prescriptions, dental work, and other may be able to access expenses. If they are not your dependents for tax purposes, you cannot use your FSA money for their care.

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

Not always. If you use a debit card linked to your account, the transaction is automatically deducted. However, some plan administrators randomly request receipts to verify that expenses were may be able to access. Keep receipts for at least three to five years in case your plan asks for proof.

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

The unused money is forfeited unless your employer offers a grace period or carryover option. Check your plan documents to see if either applies to you. If not, you lose the money — this is why estimating your healthcare costs carefully when choosing your contribution amount is important.