A Health FSA lets you set aside pretax money from your paycheck to pay for medical costs your insurance doesn't cover

A Health FSA (Flexible Spending Account) is an account your employer offers where you contribute money before taxes are taken out. You then use that money to pay for medical, dental, and vision expenses. The main advantage is that the money you put in reduces your taxable income for the year, which lowers what you owe in federal income tax.

You do not apply for a Health FSA through a government agency. Your employer sets one up through a third-party administrator, and you enroll during your company's open enrollment period — usually once a year in the fall or winter. If your employer offers one, you decide how much to contribute for the coming year. That amount is divided across your paychecks and sits in your FSA account, ready to spend on covered medical expenses.

The catch is that Health FSAs operate on a "use it or lose it" rule in most cases. Money you do not spend by the end of the plan year does not roll over to the next year. Some employers allow a grace period (usually 2.5 months into the new year) or let you carry over a small amount, but this varies by plan. You need to estimate carefully how much you will actually spend.

Key Takeaways

  • A Health FSA is offered by your employer, not a government program, and you enroll during your company's open enrollment period each year.
  • Money you contribute is taken from your paycheck before taxes, which reduces your taxable income and the federal income tax you owe.
  • You can use FSA funds to pay for copays, deductibles, prescriptions, dental work, vision care, and many other medical expenses your insurance does not fully cover.
  • Unused money at the end of the plan year is forfeited unless your employer allows a grace period or carryover, so you must estimate your spending carefully.
  • You access the money through a debit card, reimbursement form, or direct payment to providers, depending on how your employer's plan is set up.

What expenses you can pay for with a Health FSA

Health FSA funds cover a broad range of medical, dental, and vision costs. Common expenses include copays and coinsurance, deductibles, prescription medications, and over-the-counter drugs (with a prescription from your doctor). You can also use FSA money for dental cleanings, fillings, orthodontia, and vision care such as eye exams, glasses, and contact lenses.

Less obvious but still covered expenses include hearing aids, crutches, bandages, first aid kits, and certain medical equipment. Therapy copays, mental health visits, and substance abuse treatment are covered. Acupuncture, chiropractic care, and physical therapy may be covered depending on whether your insurance plan covers them — if your insurance covers it, your FSA can reimburse your out-of-pocket costs.

Expenses that are not covered include cosmetic procedures (unless medically necessary), general health products like vitamins or toothpaste, gym memberships, and weight loss programs. Cosmetic dentistry such as teeth whitening is not covered unless it is part of reconstructive work after an injury. If you are unsure whether a specific expense qualifies, check your plan documents or contact your FSA administrator before you spend the money.

How much you can contribute each year

The IRS sets an annual limit on how much you can put into a Health FSA. For 2024, the limit is $3,200 per person. This limit changes periodically, so check with your employer or FSA administrator for the current year's cap. You decide how much to contribute up to that limit, and that amount is divided evenly across your paychecks for the year.

Your contribution is deducted from your gross pay before federal income tax is calculated. If you contribute $2,400 for the year and your gross income would have been $50,000, your taxable income is reduced to $47,600. This means you pay federal income tax on $47,600 instead of $50,000, which saves you money depending on your tax bracket.

You can only change your contribution amount during open enrollment or if you have a may have access to life event — such as a marriage, birth of a child, loss of other health coverage, or significant change in your medical expenses. Outside of these windows, your contribution amount is locked in for the year.

How to access and use your FSA funds

Most employers provide an FSA debit card that works like a regular debit card at pharmacies, doctors' offices, and other medical providers. You swipe it at checkout, and the cost is deducted from your FSA account. Some plans require you to submit receipts or explanation of benefits forms to prove the expense was medical and covered.

If your plan does not include a debit card, you pay out of pocket and then submit a reimbursement request. You fill out a form (usually available online through your FSA administrator's website), attach receipts or invoices, and submit it. The administrator reviews it and deposits the reimbursement into your bank account, typically within one to two weeks.

Keep all receipts and documentation. Your FSA administrator may audit your account and ask you to prove that expenses were legitimate and covered. If you cannot provide proof, you may have to repay the reimbursement. Some administrators use a "substantiation" process where they automatically request documentation for certain transactions.

Health FSA versus Health Savings Account (HSA)

A Health Savings Account (HSA) is similar to a Health FSA but works differently in important ways. An HSA is only available if you are enrolled in a high-deductible health plan (HDHP). Unlike an FSA, money in an HSA rolls over year to year — you do not lose it. You can also invest HSA funds and withdraw them in retirement for any purpose without penalty after age 65.

The tradeoff is that HSA contribution limits are lower than FSA limits. For 2024, the HSA limit for individual coverage is $4,150 and for family coverage is $8,300. You also cannot have both an HSA and a Health FSA at the same time — you must choose one or the other.

If your employer offers both, an HSA is usually better if you expect to have ongoing medical expenses and want money to accumulate over time. A Health FSA is better if you have predictable annual expenses and want the immediate tax break, or if your health plan does not may have access to for an HSA.

What happens to unused money at the end of the year

Under the standard "use it or lose it" rule, any money left in your Health FSA at the end of the plan year is forfeited. You cannot carry it over, and you do not get a refund. This is why estimating your spending carefully is important — contributing too much means you waste money.

Some employers allow a grace period, usually 2.5 months into the new calendar year, during which you can spend down your previous year's FSA balance. A smaller number of employers allow you to carry over up to $640 (as of 2024) into the next year. Check your plan documents to see if either option applies to you.

If you leave your job mid-year, you typically have 60 days to submit claims for expenses you incurred while you were enrolled. After that window closes, you lose access to any remaining balance. Plan accordingly if you know you are changing jobs.

Frequently Asked Questions

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

Yes. FSA funds can cover medical expenses for you, your spouse, and any dependent children, even if they are not covered under your health insurance plan. You do not need to be the one receiving the care — you just need to be responsible for paying the bill.

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

Under the standard rule, unused money is forfeited. However, some employers offer a grace period (usually 2.5 months into the new year) to spend it down, or allow a small carryover. Check your plan documents or contact your FSA administrator to see what applies to your account.

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

No. If you withdraw money for non-medical expenses, you must repay it to the FSA, and you may owe taxes and penalties on the amount. The IRS audits FSA accounts, so keep documentation of all expenses you claim.

Do I lose my FSA if I change jobs?

Yes. Your FSA is tied to your employer's plan. When you leave the job, your FSA account closes. You have 60 days to submit claims for expenses you incurred while enrolled. Any remaining balance is forfeited. If your new employer offers an FSA, you can enroll during their open enrollment period.

Can I have both a Health FSA and a Health Savings Account?

No. You cannot be enrolled in both at the same time. If you have an HSA through a high-deductible health plan, you are not allowed to contribute to an FSA. You must choose one account type.