A flex spending account covers medical and dependent care costs you pay out of your own pocket, using pre-tax money you set aside from your paycheck

A flexible spending account (FSA) is an employer-sponsored plan that lets you set aside money before taxes are taken out, then use it to pay for certain healthcare and dependent care expenses. The money comes directly from your paycheck, so you pay less in federal income tax and Social Security tax. You decide how much to contribute each year during your employer's open enrollment period, and that amount is divided across your paychecks for the year.

There are two types of FSAs: a medical FSA (sometimes called a healthcare FSA) and a dependent care FSA. Most employers offer the medical version, some offer both, and a few offer only dependent care. The expenses each one covers are different, and the rules about what happens to unused money are different too.

Key Takeaways

  • Medical FSAs cover copays, deductibles, prescriptions, and certain medical equipment and supplies, but not insurance premiums or over-the-counter medications without a prescription.
  • Dependent care FSAs pay for daycare, preschool, after-school programs, and summer camps for children under 13, up to a limit set by your employer and federal law.
  • Money you don't use by the end of the plan year is forfeited under the "use-it-or-lose-it" rule, though your employer may offer a grace period or carryover option.
  • You must be enrolled in your employer's FSA during open enrollment; you cannot start one on your own or switch plans mid-year unless you have a may have access to life event.
  • FSA funds are held in an account managed by a third-party administrator, and you access them using a debit card, reimbursement form, or direct payment to providers.

What a medical FSA covers

A medical FSA pays for out-of-pocket healthcare costs that are not covered by your insurance or that you choose to pay yourself. This includes copays when you visit a doctor, urgent care, or emergency room; coinsurance (the percentage of a bill you pay after your deductible is met); and deductibles themselves. It also covers prescription medications, dental work, vision care including glasses and contact lenses, and hearing aids.

The account can also pay for medical equipment and supplies: insulin, blood glucose monitors, bandages, crutches, wheelchairs, and certain over-the-counter items if you have a prescription from a doctor. Allergy medications, pain relievers, and cold medicine do not may have access to unless a doctor writes a prescription for them. Mental health copays and therapy sessions are covered. Physical therapy, chiropractic care, and acupuncture are covered if a doctor orders them.

Medical FSAs do not cover insurance premiums (what you pay for the insurance plan itself), cosmetic procedures, or general wellness items like vitamins or gym memberships. They do not cover long-term care insurance or most over-the-counter medications bought without a prescription.

What a dependent care FSA covers

A dependent care FSA pays for childcare expenses for children under age 13, as long as the care allows you and your spouse (if married) to work or attend school full-time. This includes daycare centers, in-home daycare providers, preschool, after-school programs, and summer day camps. It can also pay for care during school breaks and before-school programs.

The money can go toward a nanny or babysitter if they provide care while you work, but not if they are a family member you claim as a dependent on your taxes. It covers care at your child's school if the school charges separately for before- or after-school supervision. Some employers allow the account to cover adult day care for an aging parent or disabled spouse, though this is less common and depends on your plan.

Dependent care FSAs do not cover overnight camps, tuition for school or college, or care that happens when you are not working. They do not cover babysitting for date nights or social events.

The use-it-or-lose-it rule and carryover options

Money you do not use by the end of your plan year is forfeited—you lose it. This is called the use-it-or-lose-it rule, and it is a federal requirement for FSAs. Your plan year typically runs January through December, though some employers use a different calendar. You have until a deadline (usually March 15 of the following year) to submit claims for expenses you incurred during the plan year, but the money itself must be spent by December 31.

Many employers now offer a grace period of up to 2.5 months after the plan year ends, during which you can use the previous year's leftover money to pay for new expenses. Some employers instead allow you to carry over up to $610 (this amount changes yearly) from one year to the next. Your employer chooses which option, if any, to offer—you do not get to pick. Check your plan documents or ask your benefits administrator which applies to you.

Because of this rule, most people contribute a conservative amount—enough to cover expenses they are certain they will have, but not so much that they risk losing money. If you have a major medical procedure or expense planned, that is a good year to increase your contribution.

How to access and use FSA money

Your employer contracts with a third-party administrator to manage the FSA. When you enroll, the administrator issues you a debit card or gives you access to an online portal where you can request reimbursement. Some administrators allow both methods.

If you use the debit card at a pharmacy or doctor's office, the transaction is usually approved immediately if the merchant is recognized as a healthcare provider. If you pay out of pocket and want reimbursement, you submit a claim form (on paper or online) along with a receipt or explanation of benefits from your provider. The administrator reviews it to make sure the expense qualifies, then deposits the money into your bank account, usually within one to two weeks.

Some providers bill the FSA directly, so you do not have to pay upfront and request reimbursement. This is common for copays at in-network doctors and for dependent care providers who work with your employer's plan. Ask your provider or administrator whether direct billing is available.

Keep all receipts and documentation for at least three years. The IRS can audit FSA claims, and you may need to prove that expenses were real and that you paid for them.

Enrollment, changes, and may have access to life events

You can only enroll in an FSA during your employer's open enrollment period, which is usually once a year in the fall for coverage starting January 1. If you are new to your job, you may be able to enroll during a new-hire window, typically 30 to 60 days after your start date.

You cannot change your contribution amount or stop contributing mid-year unless you have a may have access to life event. These include marriage, divorce, birth or adoption of a child, loss of other health insurance, a significant change in your spouse's income or benefits, or a change in your dependent care needs (such as your child aging out of daycare). You typically have 30 to 60 days after the event to make changes. Your employer's benefits administrator can tell you whether your situation qualifies.

If you leave your job, your FSA coverage usually ends on your last day of employment. You can use any remaining balance to pay for expenses incurred before you left, but you cannot carry the account forward to a new employer. Some employers offer COBRA continuation for FSAs, which lets you keep the account for a limited time after you leave, though you pay the full cost yourself.

FSA limits and tax savings

The IRS sets a maximum contribution limit for medical FSAs each year. For 2024, the limit is $3,200 per person per year. Your employer may set a lower limit. Dependent care FSAs have a separate limit: $5,000 per household per year if you are married filing jointly, or $2,500 if you are single or married filing separately.

The tax savings depend on your income and tax bracket. If you contribute $2,500 to a medical FSA and you are in the 22% federal tax bracket, you save roughly $550 in federal taxes, plus whatever you save in state and local taxes and Social Security tax. The actual savings vary by location and income. This is why FSAs are most valuable for people who have predictable medical or childcare expenses and are in a higher tax bracket.

Frequently Asked Questions

Can I use my medical FSA to pay for my spouse's or child's healthcare?

Yes. The account can pay for medical expenses of you, your spouse, and any dependent you claim on your taxes, regardless of whether they are covered by your insurance. The money does not have to be used only for your own care.

What happens if I submit a claim for an expense that does not may have access to?

The administrator will deny the claim and ask you to resubmit with a different expense or documentation. If you have already withdrawn the money from your account, you may have to repay it. Repeated non-may have access to claims can trigger an audit by the IRS.

Can I roll over unused FSA money to next year?

Only if your employer's plan allows it. Some plans offer a grace period (2.5 months to spend leftover money) or a carryover (up to $610 to the next year). Many plans offer neither, meaning unused money is forfeited. Check your plan documents or ask your benefits administrator.

What if I change jobs mid-year?

Your FSA ends when you leave your employer. You can use any remaining balance to pay for expenses you incurred before your last day, but you cannot transfer the account to a new job. If your new employer offers an FSA, you can enroll during your new-hire window.

Is FSA money subject to income tax if I do not use it?

No. Unused money is simply forfeited—you do not owe taxes on it. However, you also do not get the money back. This is why the use-it-or-lose-it rule makes FSAs risky if you cannot predict your expenses accurately.