A flex spending account lets you set aside pre-tax money from your paycheck to pay for medical and dependent care costs

A flexible spending account (FSA) is a benefit your employer may offer that lets you put money into a separate account before taxes are taken out. You then use that money to pay for may be able to access medical expenses or childcare costs. The money comes straight from your paycheck, so you never see it as taxable income — which means you pay less in federal income tax, Social Security tax, and Medicare tax that year.

There are two types: a medical FSA (also called a healthcare FSA) covers doctor visits, prescriptions, dental work, vision care, and medical equipment. A dependent care FSA covers daycare, preschool, after-school programs, and summer camps for children under 13, or adult day care for a dependent you claim on your taxes. You cannot use one account for the other type of expense.

The catch is the use-it-or-lose-it rule: money you do not spend by the end of the plan year (usually December 31) goes back to your employer. You cannot carry it forward to next year, and you cannot get it back as a refund. Some employers offer a grace period of up to 2.5 months into the next year, or let you carry over up to $610 (the 2024 limit), but this is optional — check your plan documents to see if yours does.

Key Takeaways

  • You choose how much to contribute each year during open enrollment, and that money is deducted from your paycheck before taxes are calculated, lowering your tax bill.
  • Medical FSAs cover doctor visits, prescriptions, dental, vision, and medical equipment; dependent care FSAs cover childcare and adult day care only.
  • Money you do not spend by the end of the plan year is forfeited unless your employer offers a grace period or carryover option.
  • You access the money through a debit card, reimbursement form, or direct payment to providers, depending on how your plan is set up.
  • You can only change your contribution amount if you have a may have access to life event, such as a birth, marriage, or loss of other coverage.

How much you can contribute and when you choose

You decide how much to put into your FSA during your employer's open enrollment period, which usually happens once a year in the fall for coverage starting January 1. For 2024, the maximum you can contribute to a medical FSA is $3,200 per year; for a dependent care FSA, it is $5,000 per year (or $2,500 if you are married filing separately). These limits change annually, so check your plan documents each year.

The money is deducted from your paycheck in equal amounts throughout the year. If you contribute $2,400 to a medical FSA, that is roughly $200 per paycheck (before taxes). Because this money is taken out before federal income tax, Social Security tax, and Medicare tax are calculated, your taxable income for the year is lower, and you owe less in taxes overall.

You cannot change your contribution amount mid-year unless you have a may have access to life event: birth or adoption of a child, marriage or divorce, loss of health coverage, a significant change in childcare costs, or a change in your spouse's employment or benefits. If you experience one of these events, you typically have 30 to 60 days to notify your employer and adjust your contribution.

How you pay for expenses and get reimbursed

The way you access your FSA money depends on your plan. Most medical FSAs come with a debit card that you can swipe at pharmacies, doctor offices, and medical suppliers. The card is linked to your FSA account, and the cost is deducted automatically. Some plans require you to pay out of pocket and then submit a reimbursement claim with a receipt or explanation of benefits (EOB) from your insurance company.

For dependent care FSAs, you usually submit reimbursement claims because the debit card option is less common. You pay the daycare provider or camp directly, then send your receipt and a claim form to the FSA administrator (often a third-party company your employer contracts with). Reimbursement typically takes one to two weeks after the administrator receives your claim.

Not all medical expenses are FSA-may be able to access. Common may be able to access expenses include copays, coinsurance, deductibles, prescription medications, dental work, vision care, hearing aids, crutches, and over-the-counter medications (if prescribed by a doctor). Ineligible expenses include cosmetic procedures, gym memberships, vitamins, and health insurance premiums. Your plan documents list the full rules, and the FSA administrator's website usually has a searchable database of may be able to access items.

What happens to money you do not spend

If you have money left in your FSA on December 31, it is forfeited — your employer keeps it. This is the use-it-or-lose-it rule, and it applies to both medical and dependent care FSAs. You do not get a refund, and you cannot roll the money into next year's account.

However, some employers offer one of two options to soften this rule. A grace period lets you spend FSA money on expenses incurred through the end of February (or later, depending on the plan) even though the plan year ended December 31. A carryover lets you carry up to $610 of unused medical FSA funds into the next year (the dependent care FSA has no carryover option). Your employer chooses whether to offer either option, so check your plan documents or ask your benefits administrator.

Because of this rule, it is important to estimate carefully. Look at your medical bills and childcare costs from the past year, and contribute an amount you are confident you will spend. If you overestimate and lose money, you cannot change your contribution until the next open enrollment period (unless you have a may have access to life event).

How FSAs interact with health insurance and other benefits

An FSA works alongside your health insurance plan, not instead of it. If you have a high-deductible health plan (HDHP), you may also be able to open a Health Savings Account (HSA), which is a separate account with different rules and no use-it-or-lose-it requirement. You cannot contribute to both a medical FSA and an HSA in the same year, so you have to choose one. An HSA is often better if you expect low medical costs, because unused money rolls over forever. An FSA is better if you have predictable, near-term expenses.

If you have a dependent care FSA, you cannot claim the same expenses as a tax credit on your income tax return. The FSA already gives you a tax break by reducing your taxable income, so the IRS does not allow you to claim the dependent care credit for the same money. Your tax software or preparer will ask about FSA contributions and handle this automatically.

Common mistakes and how to avoid them

The most common mistake is overestimating how much you will spend and losing money at year-end. To avoid this, track your actual medical and childcare expenses for a few months before open enrollment, then use that data to set a realistic contribution. If you are unsure, contribute less — you can always increase next year.

Another mistake is not knowing which expenses are may be able to access. Over-the-counter medications, for example, are only may be able to access if a doctor writes a prescription for them; buying them without a prescription does not count. Sunscreen, toothpaste, and cosmetic items are never may be able to access. Before you buy something expecting to use FSA money, check your plan's list of may be able to access expenses or ask the administrator.

A third mistake is missing the deadline to submit reimbursement claims. Most plans require you to submit claims within 90 days of the expense date, though some allow longer. Keep receipts and EOBs organized, and submit claims promptly. If you miss the deadline, the money is forfeited and you cannot get it back.

Frequently Asked Questions

Can I use my FSA debit card at any store?

No. The FSA debit card only works at pharmacies, doctor offices, dental offices, vision centers, and medical suppliers. It will be declined at grocery stores or general retailers, even if you are buying an may be able to access item like a prescription or medical device. For may be able to access items sold at general retailers (like bandages or crutches), you usually have to pay out of pocket and submit a reimbursement claim.

What happens to my FSA if I leave my job?

Your FSA coverage ends on your last day of employment. You can use any remaining balance through your final day, but you cannot access it after that. You do not get a refund for unused money. If you move to a new job with FSA coverage, you start a new account with a new contribution limit — you cannot transfer the old balance.

Can I use my dependent care FSA for overnight camp?

Yes, if the camp is primarily for childcare while you work. Day camps and after-school programs are may be able to access. Overnight camps are may be able to access only if they are necessary for you to work full-time. Camps that are primarily educational or recreational (like sports camps or music camps) are not may be able to access, even if childcare happens during the day.

Do I have to use my FSA if my employer offers one?

No. Participating in an FSA is optional. If you do not think you will spend the money or if you are unsure about your expenses, you can skip it and pay for medical and childcare costs with after-tax dollars. Just remember that if you do participate, you get a tax break on the money you contribute.

Can I change my FSA contribution if my income changes?

No, unless you have a may have access to life event. A change in income alone does not allow you to adjust your FSA contribution mid-year. You can only change during open enrollment or if you experience a birth, marriage, divorce, loss of coverage, or significant change in childcare costs or dependent status.