What happens when you open an FSA

A Flexible Spending Account (FSA) is a workplace account where you set aside pretax money to pay for medical and dependent care costs. You decide how much to contribute each year during your employer's open enrollment period, and that money comes out of your paycheck before taxes are calculated. This reduces your taxable income for the year.

The money sits in your FSA account, ready to use. You don't pay income tax, Social Security tax, or Medicare tax on it — which is the main financial advantage. Your employer may also contribute to the account, though this varies by company.

The account is tied to your job. If you leave your employer, you lose the FSA and any unused money in it (with a narrow exception for dependent care FSAs if you have a may have access to life event). This is why FSAs work best when you have a clear sense of what you'll spend in the coming year.

Key Takeaways

  • You contribute pretax dollars to your FSA during open enrollment, reducing the taxes you owe that year.
  • You can use FSA money to pay for may be able to access medical expenses like copays, deductibles, prescriptions, and dental work, or for dependent care like daycare.
  • You request reimbursement by submitting receipts and a claim form to your plan administrator, or you use an FSA debit card if your plan offers one.
  • Any money left in your FSA at the end of the year is forfeited — you cannot carry it over or take it with you if you change jobs.
  • Your employer chooses which expenses count as may be able to access, so check your plan documents to confirm what you can use the money for.

How you spend the money: may be able to access expenses

FSA money can only be used for may have access to medical and dependent care expenses. The IRS sets the broad rules, but your employer's plan decides which specific expenses count. This is important: not every health expense is FSA-may be able to access.

Common may be able to access medical expenses include copays and coinsurance, deductibles, prescription medications, dental work (cleanings, fillings, root canals, orthodontia), vision care (eye exams, glasses, contacts), hearing aids, and medical equipment like crutches or blood pressure monitors. Gym memberships and general wellness programs are not may be able to access, but a gym membership prescribed by a doctor as treatment for a specific condition may be.

If you have a dependent care FSA instead, you can use the money for daycare, preschool, after-school care, and summer day camps — but only for children under 13 or disabled dependents of any age. The care must allow you or your spouse to work.

Before you contribute, read your plan's summary of benefits or call your plan administrator to confirm what counts. Submitting a receipt for an ineligible expense means you'll have to pay it back out of pocket.

How to request reimbursement

There are two main ways to access your FSA money. The first is a debit card issued by your plan administrator. You use it like a regular card at the pharmacy, doctor's office, or daycare center. The charge comes straight from your FSA balance. Some cards require you to submit a receipt afterward to prove the expense was may be able to access; others don't.

The second method is to pay out of pocket and then request reimbursement. You submit a claim form (usually available on your plan's website or from your HR department) along with receipts showing what you paid and when. Your plan administrator reviews it, confirms the expense is may be able to access, and sends you a check or direct deposit within a few weeks.

Keep all receipts for at least three years. Your plan administrator may ask to see them to verify that you spent the money on may be able to access expenses. If you can't produce a receipt, you may have to repay the reimbursement.

The "use it or lose it" rule and what it means

Money left in your FSA at the end of the calendar year does not roll over to the next year. This is the forfeiture rule, and it's the biggest risk of having an FSA. If you contribute $2,500 and spend only $2,000, the remaining $500 is gone — your employer keeps it.

There is one small exception: your employer can allow a "grace period" of up to 2.5 months into the next year to spend the previous year's money. Not all employers offer this, so check your plan. Even with a grace period, any money still unspent after that important date is forfeited.

Because of this rule, contribute only what you're confident you'll spend. If you have a medical procedure scheduled, dental work planned, or regular prescriptions you know you'll refill, those are safe to count. If you're guessing, contribute less.

What happens if you change jobs or have a life event

If you leave your job, your FSA ends when ready. Any unused money is forfeited, even if you're leaving to take another job with an FSA. You cannot transfer the balance or take it with you.

However, you can open a new FSA at your new employer during their open enrollment or within 30 days of your hire date. You'll start fresh with a new contribution amount.

Certain life events — marriage, divorce, birth of a child, loss of health insurance, or a significant change in dependent care costs — allow you to change your FSA contribution mid-year without waiting for open enrollment. You have 30 to 60 days (depending on your plan) to request the change. This is useful if your circumstances shift and you realize you contributed too much or too little.

FSA vs. HSA: which is which

An FSA and an HSA (Health Savings Account) are both pretax accounts for medical expenses, but they work differently. An FSA is offered by your employer, has a forfeiture rule, and doesn't require a high-deductible health plan. An HSA is also employer-offered (or you can open one yourself), but it requires enrollment in a high-deductible health plan, allows you to carry unused money forward year to year, and lets you invest the balance like a retirement account.

If your employer offers both, you can use an HSA for long-term medical savings and an FSA for expenses you know you'll have this year. If you have only an FSA, use it for predictable costs. If you have only an HSA and a high-deductible plan, the HSA is more flexible because you don't lose the money.

Common mistakes to avoid

The biggest mistake is overestimating how much you'll spend and losing money to forfeiture. Start low — contribute what you're certain about, then increase next year if you didn't use it all.

Another common error is submitting a claim for an ineligible expense. Over-the-counter medications (like cold medicine or pain relievers) are not may be able to access unless you have a prescription. Cosmetic procedures are not may be able to access. Vitamins and supplements are not may be able to access unless prescribed by a doctor for a specific medical condition. Check your plan before you submit.

Don't lose your receipts. Your plan administrator can ask for proof at any time, and without it you may have to repay a reimbursement or be denied a claim.

Finally, don't assume your FSA works the same way as your coworker's. Employers can customize which expenses are may be able to access, whether a grace period exists, and how the debit card works. Read your plan documents or ask HR.

Frequently Asked Questions

Can I use my FSA debit card for anything other than medical expenses?

No. The card is restricted to may be able to access medical and dependent care expenses only. If you try to use it for groceries, gas, or other non-may be able to access items, the transaction will be declined. Some cards require a receipt to prove the purchase was may be able to access.

What happens to my FSA if I get fired or laid off?

Your FSA ends on your last day of employment. Any unused balance is forfeited. However, you may be may have access to to COBRA continuation coverage, which would let you keep the FSA for a limited time — check with your HR department about whether this applies to you.

Can I change my FSA contribution amount during the year?

Only if you have a may have access to life event, such as marriage, divorce, birth of a child, or a significant change in dependent care costs. You must request the change within 30 to 60 days of the event. Open enrollment is the normal time to change your contribution.

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

It depends on your plan. Some debit cards require a receipt for every transaction; others don't. Your plan administrator will tell you the rules. Even if receipts aren't required at the time, keep them for at least three years in case your plan asks for proof later.

Can I use my FSA for my spouse's medical expenses?

Yes, if your spouse is covered under your health insurance plan. You can also use FSA money for your children's medical expenses. The key is that the person receiving care must be claimed as a dependent on your tax return or covered under your plan.