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

A Medical Flexible Spending Account (FSA) is an employer-sponsored account where you contribute money before taxes are taken out. You then use that money to pay for medical, dental, and vision expenses that your health insurance plan doesn't cover or covers only partially. The main advantage is that you avoid paying federal income tax, Social Security tax, and Medicare tax on the money you contribute — which typically saves you 20 to 40 percent on those expenses, depending on your tax bracket.

Medical FSAs are offered through your employer's benefits plan. You choose how much to contribute each year during open enrollment, and that amount is deducted from your paycheck in equal installments throughout the year. You then submit receipts or use a debit card linked to the account to pay for covered expenses. The account is "use it or lose it" — money you don't spend by the end of the plan year (usually December 31) is forfeited, though some employers offer a grace period or carryover of up to $610.

Key Takeaways

  • Medical FSA contributions come out of your paycheck before taxes, which reduces your taxable income and typically saves you 20 to 40 percent on the money you set aside.
  • You can use FSA funds to pay for deductibles, copays, prescriptions, dental work, vision care, and other medical expenses your insurance doesn't fully cover.
  • Money you don't spend by the end of the plan year is forfeited, so you need to estimate carefully how much you'll actually use.
  • You can only open or change your FSA contribution during your employer's open enrollment period, unless you have a may have access to life event like losing other health coverage.

What expenses you can pay for with an FSA

Medical FSA funds can cover a wide range of out-of-pocket health costs. Common expenses include insurance deductibles and copayments, prescription medications, dental cleanings and fillings, eyeglasses and contact lenses, hearing aids, and physical therapy. You can also use FSA money for over-the-counter items like pain relievers, allergy medication, and first-aid supplies — though over-the-counter drugs now require a prescription or a doctor's note to may have access to.

The IRS maintains a detailed list of what counts as a medical expense. Some less obvious items that may have access to include acupuncture, chiropractic care, mental health counseling, and certain medical equipment like crutches or blood pressure monitors. Cosmetic procedures like teeth whitening or Botox do not may have access to. If you're unsure whether a specific expense is covered, your FSA plan administrator can tell you before you spend the money.

How much you can contribute each year

The IRS sets an annual limit on how much you can contribute to a Medical FSA. For 2024, the limit is $3,200 per person. This limit changes each year and is adjusted for inflation. If you're married and both you and your spouse have access to Medical FSAs through your employers, you can each contribute up to the limit — but you cannot combine accounts or share funds between spouses.

Your employer may set a lower limit than the IRS maximum, so check your plan documents to see what your specific employer allows. You decide your contribution amount during open enrollment, and that amount is locked in for the entire plan year. If your circumstances change — such as a change in income, a new child, or loss of other health coverage — you may be able to change your contribution mid-year, but only if your employer's plan allows it.

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

Money left in your Medical FSA at the end of the plan year is forfeited. This is the biggest drawback of FSAs: if you contribute $2,000 but only spend $1,500, you lose the remaining $500. Because of this rule, you need to estimate conservatively how much medical spending you'll actually have in the coming year.

Some employers offer a grace period of up to 2.5 months into the next year, during which you can still spend money from the previous year's account. Others allow you to carry over up to $610 (for 2024) into the next plan year. Not all employers offer either option, so check your plan documents. If your employer offers both, you can typically use the grace period to spend down your account, then carry over the remaining balance.

How to use your FSA funds

Most employers provide an FSA debit card that you can use at pharmacies, doctors' offices, and other healthcare providers. When you use the card, the transaction is deducted directly from your FSA balance. Some providers may ask you to submit a receipt or explanation of benefits to verify the expense is FSA-may be able to access before the payment goes through.

If your employer doesn't provide a debit card, or if you pay out of pocket, you can submit receipts to your FSA plan administrator for reimbursement. Keep all receipts and documentation for at least three years in case of an audit. You can typically submit claims online through your plan's website or mobile app, by mail, or by phone. Reimbursement usually takes one to two weeks after you submit the claim.

When you can enroll or change your FSA

You can only open a Medical FSA or change your contribution amount during your employer's open enrollment period, which typically happens once a year in the fall for coverage starting January 1. Outside of open enrollment, you cannot make changes to your FSA contribution — even if you realize you chose the wrong amount.

The exception is a may have access to life event, which allows you to make changes within 30 to 60 days of the event. may have access to events include marriage or divorce, birth or adoption of a child, loss of health coverage through another source, a significant change in your spouse's health plan, or a substantial change in your expected medical expenses. Your employer's benefits office can tell you whether your situation qualifies and what documentation you need to provide.

Medical FSA versus Health Savings Account (HSA)

Medical FSAs are often confused with Health Savings Accounts (HSAs), but they work differently. An HSA is available only if you have a high-deductible health plan, and unlike an FSA, unused money rolls over to the next year indefinitely — there is no "use it or lose it" rule. HSAs also allow you to invest the money and withdraw it tax-free in retirement for any purpose once you turn 65.

However, HSAs have lower annual contribution limits (for 2024, $4,150 for individual coverage and $8,300 for family coverage) and are only available through certain health plans. Medical FSAs have higher contribution limits and are available to anyone whose employer offers them, regardless of health plan type. Some employers offer both an FSA and an HSA, but you cannot contribute to both in the same year if you have an HSA-may be able to access health plan.

Frequently Asked Questions

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

You typically lose access to your FSA when you leave your employer. However, federal law (COBRA) may allow you to continue your FSA for a limited time by paying the full premium yourself. You have a short window — usually 30 to 60 days — to elect COBRA coverage after leaving your job. Any unused FSA balance is forfeited when your coverage ends.

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

Yes. FSA funds can be used for medical expenses of you, your spouse, and your dependents — including children, even if they're not claimed on your taxes. The person receiving the care does not need to be on your health insurance plan. You just need receipts showing the expense was for a covered medical service.

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

Not always. If you use an FSA debit card at a pharmacy or doctor's office, the transaction is usually verified automatically. However, some plan administrators require you to submit receipts for certain types of expenses or if the debit card is used at a retailer like a grocery store or drugstore chain. Check with your plan administrator about their specific documentation requirements.

Can I change my FSA contribution if my income changes during the year?

Only if your employer's plan allows mid-year changes and you have a may have access to event. A change in income alone is not typically a may have access to event. However, if your income change results from a job loss, reduction in hours, or other life event your employer recognizes, you may be able to adjust your contribution. Contact your benefits office to ask what changes your plan allows.