A flexible spending account lets you set aside pretax money from your paycheck to pay for medical expenses your insurance doesn't cover
A flexible spending account (FSA) is an employer-sponsored plan where you contribute money before taxes are taken out, then use that money to pay for out-of-pocket medical costs. The money you put in reduces your taxable income for the year, which means you pay less in federal income tax and Social Security tax. Your employer may also contribute to your FSA, though this is optional on their part.
The catch is timing: you choose how much to contribute at the start of the year, and most of that money must be spent by the end of the plan year or you lose it. Some employers offer a grace period of up to 2.5 months into the next year, or let you carry over up to $610 (as of 2024) to the following year, but these are exceptions. You need to estimate your medical expenses accurately, because money left unspent does not roll into your next year's account or come back to you as a refund.
Key Takeaways
- FSA contributions come from your paycheck before taxes, lowering your taxable income and the federal income tax you owe that year.
- You must spend FSA money on may have access to medical expenses—copays, deductibles, prescriptions, dental work, vision care, and some over-the-counter items—or lose it at year's end.
- You choose your contribution amount once per year during open enrollment, and most employers require you to spend it all within the plan year or lose the remainder.
- FSAs are separate from health insurance; they work alongside your plan to cover costs your insurance does not pay.
- If you leave your job, you typically cannot take your FSA balance with you, though you may be able to use remaining funds through the end of the plan year.
What counts as a may have access to medical expense
The IRS maintains a list of what you can buy with FSA money. Copays and coinsurance (your share of the cost after insurance pays) always count. Deductibles count. Prescription medications count. Over-the-counter medications like ibuprofen and allergy pills count only if you have a prescription or a doctor's note saying you need them—you cannot just buy them without documentation.
Dental and vision care are covered: cleanings, fillings, root canals, glasses, contact lenses, and eye exams all may have access to. Mental health services, physical therapy, and chiropractic care count if your doctor orders them. Hearing aids and batteries may have access to. Insulin and diabetic supplies may have access to. Certain medical equipment—crutches, wheelchairs, blood pressure monitors, thermometers—qualifies.
What does not count: cosmetic procedures (unless medically necessary), gym memberships, vitamins (unless prescribed), toothpaste, soap, shampoo, sunscreen, and most over-the-counter items without a prescription. If you are unsure whether something qualifies, ask your FSA plan administrator or check the IRS Publication 502 before you buy.
How much you can contribute and when
For 2024, the maximum FSA contribution is $3,200 per year. This limit changes annually and is set by the IRS. You choose your contribution amount during your employer's open enrollment period, which usually happens once per year in the fall for coverage starting January 1. If you miss open enrollment, you cannot change your contribution until the next year, unless you have a may have access to life event—marriage, divorce, birth of a child, loss of other health coverage, or a significant change in your expenses.
The money comes out of your paycheck in equal installments throughout the year. If you contribute $2,400, that is roughly $200 per paycheck (depending on how many pay periods your employer has). You do not pay federal income tax, Social Security tax, or Medicare tax on this money, which is the main financial benefit of an FSA.
The use-it-or-lose-it rule and how to avoid losing money
At the end of the plan year, any money you have not spent is forfeited. You cannot roll it over to the next year, and you cannot get it back as a refund. This is the biggest risk of an FSA: if you overestimate your medical expenses, you lose the difference.
Some employers offer a grace period of up to 2.5 months into the next calendar year, meaning you can spend money from the prior year's FSA through mid-March. Other employers allow you to carry over up to $610 (for 2024) to the next year instead. Ask your employer which option they offer, because this changes how you should estimate your contribution.
To avoid losing money, track your medical expenses from the past year and add a small buffer. If you had $1,800 in out-of-pocket costs last year, contribute $2,000 this year. If your expenses are unpredictable, contribute a smaller amount. You can also spend down your FSA near year's end by scheduling dental cleanings, buying glasses, or filling prescriptions you know you will need.
How to submit claims and get reimbursed
When you incur a medical expense, you have two ways to pay for it: use your FSA debit card (if your employer provides one) or pay out of pocket and submit a claim for reimbursement.
If you have an FSA debit card, you can swipe it at the pharmacy, doctor's office, or medical supply store just like a regular debit card. The card is linked to your FSA account, and the purchase is deducted from your balance. Some merchants may ask for a receipt or explanation of benefits to verify the expense is may have access to; keep these documents in case you need to provide proof later.
If you pay out of pocket, you submit a claim to your FSA plan administrator with a receipt and proof of the expense (usually an explanation of benefits from your insurance or an itemized receipt from the provider). Most plans let you submit claims online through a website or mobile app, by mail, or by email. Reimbursement typically takes one to two weeks after the plan administrator approves your claim.
FSA versus HSA: which one is right for you
An FSA and a Health Savings Account (HSA) both let you set aside pretax money for medical expenses, but they work differently and have different rules.
An FSA is available to anyone with an employer health plan, regardless of the plan type. You do not need to own the account yourself; your employer owns it and administers it. Money in an FSA does not roll over year to year (with limited exceptions). You can access the money only while you are employed by that employer.
An HSA is available only if you are enrolled in a high-deductible health plan (HDHP). You own the account yourself, even if your employer contributes to it. Money in an HSA rolls over indefinitely and earns interest or investment returns. You can take the account with you if you change jobs. HSAs have higher contribution limits than FSAs.
If your employer offers both, you cannot contribute to both in the same year. If your employer offers only an FSA, or if you are not may be able to access for an HSA, an FSA is a straightforward way to reduce your taxes and cover medical costs. If you are may be able to access for an HSA, compare the contribution limits, your expected medical expenses, and whether you want the money to roll over year to year.
What happens to your FSA if you leave your job
When you leave your employer, your FSA account closes. You typically have until the end of the plan year to submit claims for expenses you incurred while employed, but you cannot contribute new money or use the account after your last day of work.
If you have unused FSA money remaining when you leave, that money is forfeited—you do not receive it as a refund or a final paycheck. This is another reason to spend down your FSA before you plan to leave a job. If you know you are leaving mid-year, try to use up your balance in the months before your departure.
When you start a new job with FSA coverage, you can enroll in that employer's FSA during open enrollment or if you have a may have access to life event. The new FSA is a separate account with a separate contribution limit and plan year.
Frequently Asked Questions
Can I use my FSA for my spouse or children?
Yes, you can use FSA money to pay for may have access to medical expenses for your spouse and dependents, even if they are not on your health insurance plan. The expense must be may have access to; the person does not have to be covered by your plan.
What if I do not spend all my FSA money by the end of the year?
You lose the unspent money. It does not roll over, and you do not get a refund. Some employers offer a grace period (up to 2.5 months into the next year) or a limited carryover (up to $610 for 2024), so check your plan documents. If your plan offers neither, spend down your balance before December 31.
Can I change my FSA contribution mid-year?
Only if you have a may have access to life event: marriage, divorce, birth or adoption of a child, loss of other health coverage, or a significant change in your medical or dependent care expenses. A change in your income alone does not may have access to. Contact your employer's benefits department to request a change.
Do I need receipts to use my FSA debit card?
You should keep receipts and explanations of benefits for your records. Some merchants and FSA administrators may request proof that an expense is may have access to, especially for over-the-counter items. Keeping documentation protects you if there is a dispute.
Can I withdraw money from my FSA without using it for medical expenses?
No. FSA money must be used for may have access to medical expenses only. Withdrawing money for other purposes is not permitted and may result in taxes and penalties. The account is designed specifically for medical costs.