What a Flexible Savings Account Does

A Flexible Savings Account (FSA) is a workplace account where you set aside pre-tax money to pay for medical and dependent care expenses. Your employer takes the money directly from your paycheck before taxes are calculated, which lowers your taxable income for the year. You then use the FSA debit card or submit receipts to reimburse yourself for may be able to access expenses.

The main advantage is the tax savings. Because the money comes out before federal income tax, Social Security tax, and Medicare tax are applied, you pay less in taxes overall. If you spend $2,500 on may be able to access medical costs during the year and your tax rate is 25 percent, you save roughly $625 in taxes.

FSAs are offered by employers as a voluntary benefit — your company does not automatically enroll you. You choose whether to participate during your employer's open enrollment period, usually once a year in the fall.

Key Takeaways

  • You decide how much to contribute each year during open enrollment, and that money is deducted from your paychecks before taxes.
  • You can use FSA funds to pay for copays, deductibles, prescriptions, dental work, vision care, and other IRS-approved medical expenses.
  • Most FSAs operate on a "use it or lose it" basis, meaning money left in the account at the end of the year does not roll over to the next year.
  • You access the money either through a debit card issued by your plan administrator or by paying out of pocket and submitting receipts for reimbursement.
  • FSA rules and contribution limits change each year, so you must re-enroll annually if you want to participate.

How Much You Can Contribute

You decide your FSA contribution amount during open enrollment. The IRS sets a maximum contribution limit each year — this limit changes annually. For 2024, the limit is $3,200, but check with your employer or plan documents for the current year's limit, as it may have changed.

Your contribution is divided evenly across your paychecks for the year. If you contribute $2,400 and are paid biweekly, roughly $92.31 comes out of each paycheck. You cannot change your contribution amount mid-year unless you have a may have access to life event, such as a birth, marriage, divorce, or loss of other health coverage.

Start with a realistic estimate of what you will actually spend on may be able to access expenses. Unlike a health savings account (HSA), FSA money does not roll over, so money left unspent at the end of the year is forfeited. Some employers offer a grace period of up to 2.5 months into the next year to spend remaining funds, but this is optional and not all plans include it.

What Expenses You Can Pay For

FSA funds cover a wide range of medical and dependent care costs. may be able to access medical expenses include copays, coinsurance, deductibles, prescription medications, dental work (fillings, cleanings, orthodontics), vision care (glasses, contacts, exams), hearing aids, and medical equipment like crutches or blood pressure monitors.

You can also use FSA funds for dependent care — typically childcare or adult daycare for a dependent family member. Dependent care FSAs are separate accounts with their own contribution limits and rules, and they are often offered alongside medical FSAs.

Over-the-counter medications are may be able to access only if you have a prescription from your doctor. Cosmetic procedures, gym memberships, and general wellness products are not covered. If you are unsure whether an expense qualifies, check your plan's summary of benefits or contact your plan administrator before spending the money.

How to Access Your FSA Money

Most FSA plans issue a debit card that you can use at pharmacies, doctor offices, and other providers. You swipe the card like a regular debit card, and the cost is deducted from your FSA balance. Some cards require you to submit a receipt afterward to confirm the expense was may be able to access; others do not.

If your plan does not issue a debit card, or if you prefer to pay out of pocket, you can submit a claim for reimbursement. You pay for the expense yourself, gather the receipt and any required documentation, and submit it to your plan administrator. They review the claim and send you a reimbursement check or direct deposit.

Keep all receipts and documentation. Your plan administrator may ask for proof that an expense was may be able to access, especially for larger claims or items that are sometimes non-may be able to access (like certain over-the-counter products). Losing a receipt does not mean you lose the money, but you may need to provide other proof, such as an explanation from your doctor or pharmacy.

The "Use It or Lose It" Rule

FSA money that remains unspent at the end of the plan year is forfeited — you cannot carry it over to the next year. This is the biggest drawback of an FSA. If you contribute $2,500 and spend only $1,800, the remaining $700 is lost.

Some employers offer a grace period, which allows you to spend remaining FSA funds for up to 2.5 months after the plan year ends. For example, if your plan year ends on December 31, you might have until mid-March to submit claims for expenses incurred during the grace period. Not all employers offer this, so check your plan documents.

A few employers also offer a carryover option, allowing you to roll up to $640 (or the amount set by your employer, if lower) into the next year. Again, this is optional and not standard. The best strategy is to estimate conservatively and contribute only what you are confident you will spend.

When Your FSA Ends

Your FSA coverage is tied to your employment. If you leave your job, your FSA ends, and you lose access to any remaining balance. Some plans allow you to submit claims for expenses incurred before your last day of work for up to 60 or 90 days after you leave, but you cannot add new money or use the card after your employment ends.

If you are laid off or your hours are reduced, you may be able to continue your FSA under COBRA (Consolidated Omnibus Budget Reconciliation Act), though you will pay the full premium yourself, including the employer's share. COBRA continuation is expensive and usually not worth it for an FSA, but it is an option if you have significant remaining balance and know you will incur may be able to access expenses.

When you leave a job, contact your plan administrator to find out the important date for submitting claims for expenses you already incurred. Do not assume your FSA access ends when ready on your last day — you may have a window to file reimbursements.

FSA vs. Health Savings Account (HSA)

FSAs and HSAs are both tax-advantaged accounts for medical expenses, but they work differently. An FSA is offered by your employer and does not roll over. An HSA is a personal account that you own, and the money rolls over indefinitely — you can save it year after year like a retirement account.

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). Not all employers offer HDHPs, so HSAs are not available to everyone. FSAs have no health plan requirement — you can have an FSA with any type of health insurance your employer offers.

If your employer offers both an FSA and an HSA, you generally cannot contribute to both in the same year. Many people choose an HSA if it is available because of the rollover feature, but an FSA may be the better choice if you have predictable medical expenses each year and want to maximize your tax savings.

Frequently Asked Questions

Can I use my FSA for my spouse or children?

Yes, you can use FSA funds to pay for may be able to access medical expenses for your spouse and dependent children, even if they are not covered under your health insurance plan. You do not need to claim them as dependents on your taxes. Keep receipts showing the patient's name to document that the expense was for a family member.

What happens if I submit a claim for an ineligible expense?

Your plan administrator will deny the claim and ask you to resubmit with a different expense or documentation. If you have already spent the money from your debit card on an ineligible item, that money is gone — the plan will not reimburse you. This is why it is important to check the may be able to access rules before spending.

Can I change my FSA contribution mid-year?

No, unless you have a may have access to life event such as birth, marriage, divorce, death of a dependent, or loss of other health coverage. Job changes, raises, and changes in health status do not may have access to. You can change your contribution amount during the next open enrollment period.

Do I pay taxes on FSA reimbursements?

No. FSA reimbursements are not taxable income. The tax benefit comes from the fact that the money was deducted from your paycheck before taxes were calculated. Once you spend it on an may be able to access expense, there is no additional tax.

What if I move to a different state?

Your FSA continues to work the same way. The may be able to access expenses and tax treatment are the same across all states. If you change jobs and move, your old FSA ends, but you can enroll in your new employer's FSA during their open enrollment period.