The amount you set aside depends on what you actually spend on may be able to access medical and dependent care costs

There is no single right answer because FSA contributions are based on your own expenses, not a formula. The IRS sets a maximum contribution limit — the most you can set aside in any calendar year — but you decide how much of that limit to use based on what you expect to spend. If you set aside too much, you lose the money you don't use. If you set aside too little, you pay out of pocket for costs you could have covered tax-free.

The key is estimating your medical and dependent care expenses for the coming year, then choosing a contribution amount that matches that estimate as closely as you can.

Key Takeaways

  • The maximum you can contribute to a dependent care FSA in 2024 is $5,000 per household per year; the maximum for a medical FSA varies by employer but is often $3,200 to $3,300.
  • You choose your contribution amount during open enrollment, and you cannot change it mid-year unless you have a may have access to life event like a birth, job loss, or change in childcare costs.
  • Money left unspent at the end of the year is forfeited under the "use-it-or-lose-it" rule, so overestimating costs you real money.
  • may be able to access expenses include copays, deductibles, prescription medications, dental work, vision care, and dependent care like daycare or after-school programs.
  • You can reduce your estimate if your employer offers a grace period (usually 2.5 months into the next year to spend remaining funds) or a carryover option (usually up to $640 carried to the next year).

Medical FSA contribution limits and how they work

Your employer sets the maximum you can contribute to a medical FSA, within IRS rules. For 2024, the IRS limit is $3,300 per person per year. Some employers set their limit lower than this, so check your plan documents or ask your benefits administrator what your specific maximum is.

You contribute pre-tax dollars through payroll deduction, which lowers your taxable income for the year. If you contribute $2,500 to a medical FSA and earn $50,000, your taxable income drops to $47,500. This means you pay federal income tax, Social Security tax, and Medicare tax on less money — a real reduction in what you owe.

The catch is the use-it-or-lose-it rule. Any money you don't spend by December 31 (or by the end of a grace period if your plan offers one) is forfeited. You cannot roll it over to next year or get it back as a refund. This is why setting aside too much is a genuine financial loss.

Dependent care FSA limits and what qualifies

A dependent care FSA has a separate maximum: $5,000 per household per year for 2024, regardless of how many dependents you have. This covers costs for childcare, after-school programs, summer camps, and adult day care for a dependent adult, but only if the care allows you or your spouse to work.

The IRS limits dependent care FSA contributions to the lower of $5,000 or your earned income for the year. If you earn $30,000 and your spouse earns $20,000, your household maximum is $5,000. If you earn $3,000 and your spouse does not work, your maximum is $3,000.

Like a medical FSA, dependent care FSA funds are forfeited if unused by year-end, unless your plan includes a grace period or carryover option.

How to estimate your actual spending

Start by looking at what you spent on may be able to access expenses in the past year. Pull up your insurance statements, credit card bills, and receipts for the last 12 months. Add up copays, deductibles you met, prescription medications, dental work, vision care, and any dependent care costs. This gives you a real number to work from, not a guess.

Then adjust for changes you expect in the coming year. Are you planning a major dental procedure? Will your child start preschool? Did your insurance deductible increase? Will you need more prescriptions? These changes shift your estimate up or down.

Be conservative. It is better to set aside $1,500 and spend $1,400 (losing $100) than to set aside $2,500 and spend $1,400 (losing $1,100). The smaller loss hurts less.

Grace periods and carryover options reduce the risk of losing money

Some employers offer a grace period, which gives you extra time after the year ends to spend your remaining FSA balance. The most common grace period is 2.5 months — so you can spend 2024 FSA funds through March 15, 2025. This reduces the pressure to estimate perfectly because you have a buffer.

Other employers offer a carryover option, which lets you roll up to $640 of unused 2024 funds into 2025. You still lose anything above $640, but the carryover softens the blow of a small overestimate.

Check your plan documents or ask your benefits administrator whether your employer offers either option. If they do, you can set aside a slightly higher amount without as much risk.

What happens if you overestimate or underestimate

If you set aside $3,000 and spend only $2,000, you lose $1,000 at year-end. That $1,000 was your money — it came from your paycheck as pre-tax contributions — and it straightforward disappears. There is no refund, no rollover, no second chance (unless your plan has a grace period or carryover).

If you set aside $2,000 and spend $3,000, you pay the extra $1,000 out of pocket with after-tax dollars. You do not get a tax break on that $1,000 because it was not in your FSA. This is why underestimating also costs you — you miss the tax savings on money you actually spent.

The goal is to land as close as possible to your actual spending. Perfect accuracy is impossible, but getting within a few hundred dollars is realistic if you track your past expenses and account for known changes.

Changing your FSA contribution mid-year

You choose your contribution amount during open enrollment, which is usually in the fall for benefits starting January 1. Once you make that choice, you are locked in for the entire calendar year. You cannot increase or decrease your contribution just because you changed your mind or your spending patterns shifted.

The only exceptions are may have access to life events: birth or adoption of a child, death of a spouse or dependent, divorce, significant change in childcare costs, loss of health insurance, or a change in your spouse's employment. If one of these events happens, you have 30 to 60 days (depending on your employer) to adjust your FSA contribution.

This is why your initial estimate matters so much. You are committing to that amount for 12 months unless something major changes in your life.

Frequently Asked Questions

Can I contribute different amounts to a medical FSA and a dependent care FSA?

Yes. They are separate accounts with separate limits. You can contribute up to $3,300 to a medical FSA and up to $5,000 to a dependent care FSA in the same year. Each one has its own use-it-or-lose-it rule, so you estimate spending for each separately.

What if I do not know how much I will spend because my medical needs are unpredictable?

Set aside an amount that covers your predictable costs — regular prescriptions, copays for routine visits, known dental work — and leave room in your budget to pay out of pocket for unexpected expenses. This reduces the risk of overestimating and losing money. You can always increase your contribution next year if you find you are spending more than expected.

Does my spouse's FSA limit affect mine?

For a medical FSA, no — each person has their own limit based on their own employer's plan. For a dependent care FSA, yes — the $5,000 household limit applies to both of you combined, regardless of which employer's plan you use. If you each contribute to a dependent care FSA through your employers, the total across both plans cannot exceed $5,000.

What if my employer does not offer an FSA?

You cannot set up an FSA on your own; it must be offered through your employer's benefits plan. If your employer does not offer one, you may be able to open a Health Savings Account (HSA) if you have a high-deductible health plan, which has similar tax advantages but different rules and no use-it-or-lose-it requirement.

Can I use my FSA for over-the-counter medications without a prescription?

As of 2020, you can use FSA funds for over-the-counter medications and medical supplies without a prescription from a doctor. This includes pain relievers, cold medicine, allergy medication, and first-aid supplies. Keep your receipts as proof of the expense in case your FSA administrator asks for documentation.