What a Flexible Spending Account Is

A Flexible Spending Account (FSA) is a workplace benefit that lets you set aside pre-tax money from your paycheck to pay for medical and dependent care expenses. The money comes out before income tax is calculated, which lowers your taxable income for the year. You decide how much to contribute each year during your employer's open enrollment period, and that money sits in an account you draw from when you have may be able to access expenses.

The key difference between an FSA and an HSA is timing and flexibility. An FSA is "use it or lose it"—money you don't spend by the end of the plan year generally cannot be carried forward. An HSA, by contrast, lets you keep unused money indefinitely and invest it for retirement. FSAs also don't require you to have a high-deductible health plan, so they're available to more workers.

FSAs come in two types: a medical FSA for healthcare costs, and a dependent care FSA for childcare or adult care expenses. Most employers offer the medical version, some offer both, and a few offer only dependent care.

Key Takeaways

  • FSA money comes from your paycheck before taxes, reducing what you owe to the IRS each year.
  • You choose your contribution amount during open enrollment, and that amount is locked in for the plan year.
  • Unused FSA money at the end of the year is forfeited, though some employers offer a grace period or carryover of up to $610.
  • Medical FSAs cover copays, deductibles, prescriptions, dental work, vision care, and many other out-of-pocket health costs.
  • Dependent care FSAs pay for daycare, preschool, summer camps, and adult day programs for aging parents or disabled family members.

How Much You Can Contribute

For the 2024 plan year, the IRS limit for a medical FSA is $3,200. For dependent care FSAs, the limit is $5,000 per household per year (or $2,500 if you're married and file taxes separately). Your employer may set a lower limit, so check your plan documents.

You decide your contribution amount once a year during open enrollment, usually in the fall. The money is divided evenly across your paychecks for the rest of the plan year. If you have a may have access to life event—birth of a child, loss of health coverage, divorce—you can change your contribution mid-year, but only if your employer's plan allows it.

The contribution limit changes each year, so review your election before the next open enrollment period. Contributing too much means you'll lose money you don't spend; contributing too little means you miss out on tax savings.

What Medical FSA Money Can Pay For

A medical FSA covers most out-of-pocket health costs that aren't covered by your insurance. This includes copays and coinsurance, deductibles, prescription medications, dental work (fillings, crowns, orthodontics), vision care (glasses, contacts, exams), hearing aids, and medical equipment like crutches or blood pressure monitors. You can also use FSA funds for mental health services, physical therapy, and many over-the-counter items if prescribed by a doctor.

What's not covered: health insurance premiums, cosmetic procedures, vitamins (unless prescribed), and most over-the-counter items without a prescription. The IRS publishes a full list of may be able to access expenses on its website, and your plan administrator can answer questions about specific items.

You pay out of pocket first, then submit a receipt or claim form to your FSA administrator for reimbursement. Some employers issue an FSA debit card that you can use directly at pharmacies and medical providers, which skips the reimbursement step.

The "Use It or Lose It" Rule and Carryover Options

Money left in your medical FSA at the end of the plan year is forfeited—you cannot roll it over to the next year or withdraw it. This is the biggest drawback of FSAs and the reason many people contribute conservatively. If you estimate wrong and contribute $2,000 but only spend $1,200, you lose $800.

However, many employers now offer a grace period or carryover to soften this rule. A grace period gives you an extra 2.5 months (usually through March 15) to spend the previous year's FSA money. A carryover lets you roll up to $610 of unused 2024 funds into 2025 (the carryover limit also changes yearly). Your employer chooses which option to offer, if any, so check your plan documents.

Because of this rule, estimate conservatively. Use your past medical spending and your insurance deductible as a guide. If you're unsure, start with a smaller amount and increase it next year once you see how much you actually spend.

How to Access Your FSA Money

The process depends on whether your employer issued you an FSA debit card. If you have a card, you can swipe it at pharmacies, doctor's offices, and other medical providers. The card is linked to your FSA balance, and the transaction is deducted automatically.

If you don't have a card, you pay for the expense yourself and then request reimbursement. You'll submit a claim form (usually online through your plan's website) along with a receipt or explanation of benefits from your provider. The FSA administrator reviews the claim and deposits the money into your bank account, typically within one to two weeks.

Keep all receipts and documentation. The IRS requires that FSA funds be used only for may be able to access expenses, and your plan administrator may ask for proof. If you cannot provide documentation, the reimbursement may be denied.

FSA Dependent Care Accounts

A dependent care FSA works the same way as a medical FSA but covers childcare and adult care costs. You can use it to pay for daycare, preschool, after-school programs, summer camps, and adult day programs for aging parents or disabled family members. The money must be used to pay for care while you and your spouse (if married) are working or in school.

The 2024 limit is $5,000 per household per year. Unlike a medical FSA, dependent care FSA money does not have a "use it or lose it" rule in the same way—some plans allow carryover, though this varies by employer. Check your plan documents.

You cannot use dependent care FSA money for overnight camps, tuition at a school (unless the school also provides childcare), or care for a spouse. The care provider must give you their tax ID number so you can report it to the IRS.

Frequently Asked Questions

What happens to my FSA money if I leave my job?

You lose access to your FSA when you leave your employer. Any unused balance is forfeited. However, you may be able to continue coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act) for a limited time, though you'll pay the full premium yourself. Check with your employer's benefits department about your options.

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

Yes. Your FSA can reimburse medical expenses for you, your spouse, and any dependent children under age 27, regardless of whether they're on your health insurance plan. The expense must be may be able to access; the person must be your dependent for tax purposes.

Can I change my FSA contribution mid-year?

Only if you have a may have access to life event: birth or adoption of a child, marriage or divorce, loss of health coverage, significant change in childcare costs, or a change in your spouse's employment or benefits. Your employer must allow mid-year changes, and you typically have 30 to 60 days to request the change.

Is FSA money taxed when I use it?

No. FSA money is not taxed when you withdraw it for may be able to access expenses. That's the entire benefit—you save the income tax and payroll tax (Social Security and Medicare) on the amount you contribute. If you use FSA money for an ineligible expense, you'll owe income tax plus a 20% penalty.

Should I choose an FSA or an HSA?

If your employer offers both, an HSA is usually better because unused money rolls over indefinitely and you can invest it. However, an HSA requires a high-deductible health plan, which not everyone has. An FSA is useful if you have predictable medical expenses each year and want to lower your taxable income now, even if you can't keep unused money.