A Health Care FSA lets you set aside pre-tax money from your paycheck to pay for medical expenses your insurance doesn't cover

A Health Care FSA (Flexible Spending Account) is an account your employer offers that holds money you contribute before taxes are taken out. You use that money to pay for out-of-pocket medical costs — copays, deductibles, prescriptions, dental work, vision care, and dozens of other health expenses. The main benefit is that you avoid paying federal income tax, Social Security tax, and Medicare tax on the money you put in, which effectively gives you a discount on those expenses.

The account is "use it or lose it," meaning any money you don't spend by the end of the plan year (usually December 31) goes back to your employer. Some plans offer a grace period of up to 2.5 months into the next year, or let you carry over up to $610 (the amount changes yearly). You control how much to contribute each year during your employer's open enrollment period, and the money comes out of your paycheck automatically.

Key Takeaways

  • You contribute pre-tax money to a Health Care FSA through payroll deductions, which reduces the amount of federal and payroll taxes you owe.
  • You can use FSA funds to pay for copays, deductibles, prescriptions, dental care, vision care, and other medical expenses your insurance doesn't fully cover.
  • Money left in your account at the end of the plan year is forfeited unless your plan offers a grace period or carryover option.
  • You must have a may have access to life event (like losing other insurance or a change in family status) to change your contribution amount mid-year outside of open enrollment.

What medical expenses you can pay for with an FSA

The IRS maintains a list of may have access to medical expenses you can pay for with FSA money. Common ones include copays and coinsurance, deductibles, prescription medications, insulin, and medical equipment like crutches or blood pressure monitors. Dental work (fillings, cleanings, root canals, braces) and vision care (glasses, contacts, eye exams, LASIK surgery) also may have access to.

Less obvious expenses that count include over-the-counter medications (allergy pills, pain relievers, antacids), first aid supplies, therapy copays, hearing aids and batteries, and certain medical devices prescribed by a doctor. Gym memberships and general wellness programs do not may have access to, nor do cosmetic procedures, teeth whitening, or vitamins and supplements unless prescribed by a doctor for a specific medical condition.

Your employer's plan documents will list which expenses are covered under your specific FSA. If you are unsure whether something qualifies, ask your plan administrator before you spend the money — using FSA funds on ineligible expenses means you owe taxes on that amount plus a penalty.

How much you can contribute and when

For 2024, the maximum you can contribute to a Health Care FSA is $3,200 per year. This limit changes annually and is set by the IRS. You decide how much to contribute during your employer's open enrollment period, which usually happens once a year in the fall for coverage starting January 1. The money is deducted from your paycheck in equal amounts throughout the year.

If you have a may have access to life event — such as losing health insurance, getting married, having a child, or a significant change in your spouse's benefits — you can change your contribution amount outside of open enrollment. You typically have 30 to 60 days from the event to make the change, depending on your employer's plan rules.

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

Any money remaining in your Health Care FSA at the end of the plan year is forfeited and returned to your employer. This is why choosing the right contribution amount matters: contribute too much and you lose money; contribute too little and you miss the tax savings.

Some employers offer a grace period of up to 2.5 months into the next year to spend remaining funds. Others allow you to carry over up to $610 (for 2024) into the next plan year. A few plans offer both. Check your plan documents to see which option, if any, your employer provides. If your plan offers neither, you need to estimate carefully how much you will actually spend on medical expenses in the coming year.

How to access and use your FSA funds

Most employers issue an FSA debit card that works like a credit card at pharmacies, doctor's offices, and other medical providers. You swipe it to pay for may be able to access expenses, and the amount is deducted from your FSA balance. Some plans require you to pay out of pocket first and then submit receipts for reimbursement.

If you use the debit card, keep your receipts. Your plan administrator may ask you to provide proof that the expense was medically necessary and may have access to. If you cannot provide documentation, you may have to repay the amount to the FSA, and you will owe taxes on it.

You can check your FSA balance through your employer's benefits portal or by calling the plan administrator's customer service number. Most plans let you view your balance online and track spending throughout the year.

How an FSA differs from an HSA and other savings accounts

A Health Care FSA is different from a Health Savings Account (HSA), even though both hold pre-tax money for medical expenses. An HSA is only available if you have a high-deductible health insurance plan, and unused money rolls over year to year — there is no "use it or lose it" rule. An HSA also lets you invest the money and withdraw it tax-free in retirement for any expense once you turn 65.

A Dependent Care FSA is a separate account for childcare and adult care expenses, not medical care. Some employers offer both types of FSA, and you can contribute to each one separately up to their individual limits.

An FSA is also different from a regular savings account or a health insurance plan's deductible. An FSA is specifically for out-of-pocket costs that your insurance does not cover, and the tax savings come from paying with pre-tax dollars.

Common mistakes to avoid with a Health Care FSA

The biggest mistake is overestimating how much you will spend and losing money at year-end. Start by adding up predictable expenses: copays for regular doctor visits, prescriptions you take monthly, and any planned dental or vision work. Be conservative — it is better to contribute less and not use all of it than to contribute more and forfeit the difference.

Another common error is using FSA funds for ineligible expenses. Cosmetic procedures, gym memberships, and over-the-counter items that are not medications (like sunscreen or vitamins) do not may have access to. If you are unsure, ask your plan administrator in writing before you spend the money.

Do not assume your FSA works the same way as your spouse's or a coworker's plan. Employer plans vary in what they cover, whether they offer a grace period or carryover, and how you access the money. Read your plan documents or call the administrator to understand your specific rules.

Frequently Asked Questions

Can I use my FSA money for my family members' medical expenses?

Yes, you can use your FSA to pay for medical expenses of your spouse and dependents, as long as the expenses themselves are may have access to medical expenses. You do not need to be the one receiving the care — the expense just has to be may be able to access.

What happens to my FSA if I leave my job?

You typically have a limited time (often 60 to 90 days) to submit claims for expenses you incurred while employed. Any unused balance is forfeited. Some employers let you continue coverage under COBRA, which extends your FSA for a limited period, but you must pay the full premium yourself.

Can I change my FSA contribution mid-year?

Only if you have a may have access to life event, such as marriage, divorce, birth of a child, loss of other insurance, or a significant change in your spouse's benefits. You typically have 30 to 60 days to make the change. Open enrollment is the standard time to change your contribution for the next plan year.

Do I need receipts to use my FSA debit card?

You should keep receipts even if you use a debit card. Your plan administrator may request proof that the expense was medically necessary and may have access to. Without documentation, you may have to repay the amount and owe taxes on it.

Can I roll over unused FSA money to next year?

It depends on your employer's plan. Some plans offer a grace period (up to 2.5 months into the next year to spend remaining funds), a carryover of up to $610, both, or neither. Check your plan documents or contact your employer's benefits administrator to find out which option applies to you.