What a Health FSA Account Is

A Health FSA (Flexible Spending Account) is a workplace savings account where you set aside pre-tax money to pay for medical expenses that your health insurance doesn't cover. You decide how much to contribute each year during your employer's open enrollment period, and that money comes out of your paycheck before taxes are calculated. When you have a medical bill—copays, deductibles, prescription costs, dental work, vision care—you pay it out of your FSA instead of from your regular bank account, which lowers your taxable income for the year.

The account is offered through your employer, not opened independently. Your employer sets up the plan with a third-party administrator who manages the account, processes your claims, and issues a debit card or reimburses you when you submit receipts. You do not own the account after you leave the job; the money stays with your employer's plan.

Key Takeaways

  • You contribute pre-tax dollars to your FSA during open enrollment, which reduces the income taxes you owe that year.
  • You can use FSA money only for medical expenses your insurance doesn't cover, including copays, deductibles, prescription drugs, dental, and vision care.
  • FSA accounts have a "use-it-or-lose-it" rule: money you don't spend by the end of the plan year (usually December 31) is forfeited, though your employer may offer a grace period or carryover of up to $610.
  • You must be enrolled in your employer's health plan to open an FSA, and you can only change your contribution during open enrollment or after a may have access to life event.
  • If you leave your job, you lose access to the FSA account, though you may be able to continue coverage under COBRA or roll unused funds into a Health Savings Account if you switch to a high-deductible plan.

How Much You Can Contribute and When

The IRS sets an annual contribution limit for FSAs, which changes each year. For 2024, the limit is $3,200 per person per year. Your employer may set a lower limit, but cannot allow you to contribute more than the IRS maximum. You decide your contribution amount during your employer's open enrollment period, which is typically in the fall for coverage starting January 1.

Once you choose an amount, that contribution is locked in for the entire plan year. You cannot change it unless you experience a may have access to life event—marriage, divorce, birth of a child, loss of other health coverage, or a significant change in your employer's plan. Changing jobs or losing your job does not let you adjust your FSA contribution mid-year; it ends your account.

The money comes out of your paycheck in equal installments throughout the year. If you contribute $2,400, your employer deducts $200 from each monthly paycheck (before taxes). This reduces your taxable income, which means you owe less federal income tax, Social Security tax, and Medicare tax on that money.

What You Can and Cannot Buy With FSA Money

FSA funds cover medical expenses that your health insurance does not pay for. This includes copays and coinsurance (your share of the cost after insurance pays), deductibles, prescription medications, and out-of-pocket costs for doctor visits. Dental work, vision care, and hearing aids also may have access to, even if you don't have dental or vision insurance through your employer.

Over-the-counter medications and medical supplies are covered only if you have a prescription from a doctor. Aspirin, cold medicine, and antacids purchased without a prescription do not may have access to. Insulin is an exception—you can buy it without a prescription. Medical equipment like crutches, wheelchairs, blood pressure monitors, and glucose meters all may have access to.

Expenses that do not may have access to include cosmetic procedures, gym memberships, vitamins (unless prescribed for a medical condition), and most wellness products. Sunscreen, toothpaste, and shampoo are not covered. If you are unsure whether an expense qualifies, ask your FSA administrator or check the IRS Publication 502, which lists all covered medical expenses.

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

FSA accounts operate under a "use-it-or-lose-it" rule: any money you don't spend by the end of the plan year is forfeited and goes back to your employer. This is the biggest drawback of an FSA compared to an HSA. If you contribute $2,400 and spend only $1,800, you lose the remaining $600.

Many employers offer a grace period of up to 2.5 months after the plan year ends, during which you can still submit claims for expenses incurred in the prior year. Some employers instead allow you to carry over up to $610 (the 2024 limit) into the next year. Your employer chooses one or the other—you cannot have both. Check your plan documents or ask your HR department which option applies to you.

Because of this rule, you need to estimate your medical expenses carefully when you choose your contribution. If you have predictable costs—regular prescriptions, ongoing therapy, annual dental work—you can calculate a safer amount. If your medical needs are unpredictable, contributing a smaller amount or choosing an HSA (if you are enrolled in a high-deductible health plan) may be a better choice.

How to Use Your FSA and Submit Claims

Most FSAs issue a debit card that you can use at pharmacies, doctor offices, and other medical providers. The card is linked to your FSA account, and the purchase is deducted automatically. Some providers may ask you to verify that the expense is medical-related, but usually the transaction goes through without delay.

If your FSA does not issue a debit card, or if a provider does not accept it, you pay out of pocket and then submit a claim for reimbursement. You will need to provide a receipt showing the date, amount, provider name, and what was purchased. Your FSA administrator has a website or app where you can upload receipts and request reimbursement. Most reimburse within 5 to 10 business days.

Keep all receipts and documentation for at least three years. The IRS can audit FSA accounts, and you may need to prove that expenses were legitimate medical costs. If you cannot produce a receipt, the administrator may deny the reimbursement.

What Happens to Your FSA When You Leave Your Job

When you leave your job, your FSA account closes immediately. You lose access to any remaining balance, even if you have not used it yet. This is true whether you quit, are laid off, or retire. The unused money does not roll over to a new employer's FSA or to an HSA.

Before your last day, submit any pending claims for expenses you have already incurred. Some administrators allow you to submit claims for a short period after you leave (usually 30 to 90 days), but this varies by plan. Contact your FSA administrator to ask about the deadline for submitting final claims.

If you are switching to a new job with an FSA, you can open a new account during that employer's open enrollment period, but you start with a zero balance. You cannot transfer money between employers' FSAs. If you are moving to a high-deductible health plan, you may be able to open an HSA instead, which has no use-it-or-lose-it rule and lets you carry over unused money year to year.

FSA vs. HSA: When to Choose Each

An FSA and an HSA both use pre-tax money for medical expenses, but they work differently. An FSA is available to anyone enrolled in any health plan through their employer. An HSA is available only if you are enrolled in a high-deductible health plan (HDHP), which has a higher deductible but lower premiums.

The main difference is the use-it-or-lose-it rule. FSA money expires at the end of the year (with limited carryover options). HSA money rolls over indefinitely and can be invested like a retirement account. If you have predictable medical expenses and want to use all your money each year, an FSA works well. If you have low medical expenses and want to save for future costs, an HSA is more flexible.

Some employers offer both plans. If you are enrolled in an HDHP, you can open an HSA but not an FSA. If you are enrolled in a traditional health plan, you can open an FSA but not an HSA. Check your employer's plan options during open enrollment to see what is available to you.

Frequently Asked Questions

Can I use my FSA debit card at any store?

No. The FSA debit card works only at pharmacies, doctor offices, hospitals, dental offices, vision centers, and other medical providers. It will not work at grocery stores or general retailers, even if they have a pharmacy section. Some online pharmacies and medical suppliers accept FSA cards, but you need to verify before you shop.

What happens if I submit a claim for a non-medical expense?

If you submit a receipt for something that does not may have access to—like a gym membership or cosmetic procedure—the FSA administrator will deny the claim and ask you to pay out of pocket. Intentionally submitting false claims can result in penalties and loss of FSA coverage. The administrator may also report fraud to your employer.

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 employer's plan. Job changes, raises, or changes in your medical needs do not may have access to. You can change your contribution during the next open enrollment period.

Do I have to be enrolled in my employer's health plan to open an FSA?

Yes. You must be covered by your employer's health plan to open an FSA. If you are on your spouse's plan or have individual coverage, you cannot open an FSA through your employer. Some employers allow employees on their spouse's plan to open a dependent care FSA, but not a health FSA.

Can I roll my FSA balance into an HSA?

Not directly. However, if you leave your job and move to a new employer with a high-deductible health plan, you can open an HSA at the new job. You cannot transfer your old FSA balance to the new HSA, but you can submit final claims to your old FSA for any expenses you incurred before you left. Any remaining balance is forfeited.