A flexible spending account (FSA) covers medical and dependent care costs your health insurance doesn't pay for

A flexible spending account is a tax-advantaged account your employer offers that lets you set aside pre-tax money for predictable out-of-pocket health and dependent care expenses. The money you put in reduces your taxable income for the year. You can use it to pay for things insurance won't cover, things with high deductibles, or costs that fall outside your plan's scope entirely.

The catch: FSA money is "use it or lose it." Most plans let you spend what you set aside during the calendar year, plus a grace period of up to 2.5 months into the next year. Money you don't spend by the deadline stays with your employer. That's why knowing exactly what qualifies matters before you commit to an amount.

Key Takeaways

  • FSA funds cover copays, deductibles, coinsurance, and prescription drugs, but only if your health insurance plan doesn't already cover them.
  • You can pay for dental work, vision care, hearing aids, and mental health treatment even if your employer's health plan doesn't include those benefits.
  • Dependent care FSAs cover daycare, after-school programs, and summer camps for children under 13, but not school tuition or overnight camps.
  • Over-the-counter items like pain relievers, allergy medicine, and cold remedies now may have access to without a prescription, but vitamins and supplements do not.
  • You must spend FSA money by December 31 of the plan year, plus any grace period your employer allows, or the balance is forfeited.

Medical expenses your FSA will cover

FSA funds pay for any medical cost that your health insurance doesn't cover or that you're responsible for paying yourself. This includes copays when you see a doctor, coinsurance (your percentage of the bill after insurance pays its share), and deductibles you haven't met yet. You can use FSA money to pay the deductible itself, then use insurance for the rest of the year.

Prescription medications are covered, as are most over-the-counter drugs: pain relievers, allergy medicine, cold medicine, antacids, and anti-diarrheal medication all may have access to now without requiring a prescription from your doctor. Vitamins, supplements, and herbal products do not may have access to, even if you buy them at a pharmacy.

Dental and vision care are major FSA uses. Cleanings, fillings, root canals, crowns, and orthodontia (braces) all may have access to. For vision, you can cover eye exams, glasses, contact lenses, and solution. Hearing aids and related services also may have access to. If your employer's health plan doesn't include dental or vision coverage at all, an FSA becomes especially valuable because you can set aside money specifically for those costs.

Mental health and therapy services

Copays and coinsurance for therapy, counseling, and psychiatric visits are FSA-may be able to access. If your plan requires you to pay a percentage of the therapist's bill, FSA money covers your share. Prescription psychiatric medications also may have access to.

Some employers offer separate mental health plans or employee assistance programs (EAPs) that cover therapy at no cost to you. If that's the case, you can't use FSA money for those same services—insurance is paying, so there's no out-of-pocket cost to reimburse. But if your plan has a copay or deductible for mental health visits, FSA funds cover that portion.

Dependent care FSA: what qualifies and what doesn't

A dependent care FSA is separate from a medical FSA and covers childcare costs only. You can use it for daycare centers, in-home nannies, after-school programs, and summer day camps for children under age 13. The money must go toward care that allows you (and your spouse, if married) to work or look for work.

Dependent care FSA does not cover school tuition, even for preschool or kindergarten, unless the tuition is bundled with childcare and you can separate the two costs. Overnight camps, babysitters for occasional evenings out, and care for children 13 and older do not may have access to. Adult day care for aging parents also does not may have access to under a dependent care FSA, though some employers offer a separate account for that.

The annual limit for dependent care FSA is lower than medical FSA—currently $5,000 per household per year (or $2,500 if you're married filing separately). That limit has not changed since 2013, so it's worth calculating whether an FSA makes sense for your actual childcare costs.

Medical equipment and supplies you can pay for

FSA money covers medical equipment prescribed by a doctor: crutches, wheelchairs, walkers, blood pressure monitors, glucose meters, and continuous glucose monitors (CGMs) all may have access to. Orthopedic braces, compression stockings, and custom orthotics may have access to if a doctor prescribes them. Pregnancy tests and ovulation kits are covered.

Bandages, gauze, tape, and other wound care supplies may have access to. Incontinence products may have access to. First aid kits and thermometers may have access to. The general rule: if it's a medical supply or device and a doctor would reasonably prescribe it, FSA money covers it.

Cosmetic procedures and products do not may have access to—Botox, teeth whitening, and anti-wrinkle creams are not FSA-may be able to access. However, reconstructive surgery after an injury or illness does may have access to, and so does surgery to correct a medical condition (like deviated septum surgery), even if it has cosmetic side effects.

What doesn't may have access to and common mistakes

Gym memberships, fitness classes, and general wellness programs don't may have access to, even if your doctor recommends exercise. Health insurance premiums themselves don't may have access to. Cosmetics, toiletries, and general health products (like vitamins or sunscreen) don't may have access to unless they're treating a specific medical condition and a doctor prescribes them.

Long-term care insurance premiums don't may have access to. Maternity clothes don't may have access to. Childcare for children 13 and older doesn't may have access to. If you're unsure whether something qualifies, check your plan's summary or ask your FSA administrator before you spend the money—getting reimbursed for an ineligible expense means you have to pay it back out of pocket and lose the tax advantage.

One common mistake: assuming FSA money can pay for anything health-related. It can't. The IRS has a specific list of what qualifies, and it's narrower than most people think. Another mistake: setting aside too much money and losing it at year-end. Start by tracking what you actually spent on out-of-pocket medical and dependent care costs last year, then set aside roughly that amount.

How to use FSA money and get reimbursed

Most FSAs issue a debit card that works like a credit card at pharmacies, doctors' offices, and medical suppliers. You swipe it, and the cost comes out of your FSA balance. Some FSAs require you to pay out of pocket and then submit a receipt for reimbursement—your employer's plan determines which method you use.

If you're reimbursing yourself, you'll need to keep receipts and submit them to your FSA administrator, usually through an online portal or by mail. The reimbursement typically arrives within one to two weeks. Don't throw away receipts until the plan year ends plus the grace period—the IRS allows audits of FSA claims for several years after the fact.

If you leave your job, you usually have 60 days to submit any remaining FSA claims from that plan year. After that, any unspent balance is forfeited. If you have a may have access to life event (birth, adoption, marriage, divorce, loss of other insurance), you may be able to change your FSA election mid-year, but you can't simply withdraw the money.

Frequently Asked Questions

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

Yes, if your spouse is on your tax return as a dependent. You can use your FSA to pay for their copays, prescriptions, dental work, and other out-of-pocket costs. The money belongs to you, not your spouse, so you're the one who gets reimbursed.

What happens to my FSA money if I don't spend it by the end of the year?

Most plans allow a grace period of up to 2.5 months into the next year to spend remaining money. After that, any balance is forfeited and goes back to your employer. Some employers offer a carryover of up to $610 (the limit changes yearly) instead of a grace period, but not both. Check your plan documents to see which applies to you.

Can I use FSA money to pay for my pet's medical care?

No. FSA funds are for human medical expenses only. Veterinary care, pet medications, and pet supplies do not may have access to, even if prescribed by a veterinarian.

Do I need a prescription from my doctor to buy over-the-counter medicine with my FSA?

No. As of 2020, you can buy over-the-counter pain relievers, allergy medicine, cold medicine, antacids, and similar items without a prescription and pay with FSA funds. You do not need a doctor's note. Vitamins and supplements still require a prescription to be FSA-may be able to access.

Can I use my dependent care FSA for my teenager's after-school program?

No. Dependent care FSA only covers care for children under age 13. Once your child turns 13, you cannot use dependent care FSA funds for their programs, camps, or supervision, even if you're paying for childcare.