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 payroll taxes. You decide how much to contribute each year during your employer's open enrollment period, and that money sits in an account you control.

The catch is that FSAs operate on a "use it or lose it" rule: money you don't spend by the end of the plan year (usually December 31) goes back to your employer. Some plans allow a small carryover or a grace period, but most do not. This means you need to estimate carefully what you'll actually spend on medical costs that your insurance won't pay for.

FSAs are different from health savings accounts (HSAs). An HSA requires a high-deductible health plan and lets you roll unused money forward indefinitely. An FSA works with any insurance plan and has a lower contribution limit, but the money is available immediately—you don't have to wait to accumulate it.

Key Takeaways

  • FSA contributions come from your paycheck before taxes, lowering your taxable income and the taxes you owe that year.
  • You can spend FSA money on copays, deductibles, prescription drugs, dental work, vision care, and other medical expenses your insurance doesn't cover.
  • Money you don't use by the end of the plan year is forfeited, so you must estimate your medical spending carefully when you enroll.
  • FSA contribution limits are set by the IRS and change yearly; for 2024 the limit is $3,200, but confirm your employer's limit during enrollment.
  • You access FSA money through a debit card, reimbursement forms, or direct payment to providers, depending on your plan.

What you can and cannot buy with FSA money

FSA funds cover most out-of-pocket medical expenses: copays, coinsurance, deductibles, prescription medications, insulin, and medical devices like inhalers or glucose monitors. Dental work (cleanings, fillings, root canals, orthodontia) and vision care (eye exams, glasses, contact lenses) are covered. You can also use FSA money for over-the-counter items if they treat a specific medical condition—allergy medicine, pain relievers, antacids—but not for general wellness products like vitamins or sunscreen.

Items that are not covered include health insurance premiums (though you can use a separate account called a dependent care FSA for childcare), cosmetic procedures, gym memberships, and weight-loss programs. Medications and treatments for conditions your insurance considers cosmetic—like Botox or teeth whitening—are not FSA-may be able to access. If you're unsure whether something qualifies, ask your FSA plan administrator or check the IRS Publication 502, which lists may be able to access medical expenses.

How much you can contribute and when

The IRS sets an annual contribution limit for FSAs. For 2024, the limit is $3,200 per person per year. This limit changes periodically, so check your employer's enrollment materials each year. You choose your contribution amount during open enrollment, which is usually in the fall for a plan year that starts January 1. Once you've made your election, you cannot change it 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 medical needs.

The money is deducted from your paycheck in equal installments throughout the year. Unlike an HSA, you don't have to wait for the money to accumulate: your FSA plan typically makes the full annual amount available to you on the first day of the plan year, even though you'll be paying into it gradually through payroll deductions.

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

At the end of the plan year, any money left in your FSA that you haven't spent is forfeited. This is the biggest risk of an FSA: if you contribute $2,000 and only spend $1,500, you lose the remaining $500. This rule exists because of IRS regulations that prevent FSAs from functioning as savings accounts.

Some employers offer a grace period (usually 2.5 months into the next year) during which you can spend the previous year's leftover money. Others allow a small carryover—typically $570 for 2024, though this limit changes yearly. Check your plan documents to see which option your employer offers. If your plan offers neither, you must be conservative with your estimate: contribute only what you're confident you'll spend.

How to access and use your FSA funds

Most FSA plans issue a debit card that you can use at pharmacies, doctors' offices, and other medical providers. When you swipe the card, the amount is deducted from your FSA balance. Some plans require you to submit receipts to verify the expense was medical and FSA-may be able to access; others process the transaction immediately without documentation.

If your plan doesn't issue a debit card, you pay out of pocket and then submit a claim for reimbursement. You'll need to provide a receipt or explanation of benefits (EOB) from your insurance showing the expense and the amount you paid. The plan administrator reviews the claim and deposits the reimbursement into your bank account, usually within one to two weeks.

Keep all receipts and documentation for at least three years. The IRS can audit FSA claims, and you'll need proof that the money was spent on may be able to access medical expenses. If you can't document a claim, you may have to repay the reimbursement.

FSA vs. HSA: which makes sense for you

If your employer offers both an FSA and an HSA, the choice depends on your health plan and how much you spend on medical care. An HSA requires enrollment in a high-deductible health plan (HDHP) and has a higher contribution limit ($4,150 for individual coverage in 2024), but unused money rolls forward forever and can be invested. An FSA works with any insurance plan, has a lower contribution limit, but forces you to spend or lose the money each year.

Choose an FSA if you have predictable medical expenses (regular prescriptions, ongoing therapy, dental work) and want to lower your taxes this year. Choose an HSA if you have a high-deductible plan, can afford to cover medical costs out of pocket, and want to build a long-term medical savings fund. Some people use both: they max out their HSA first (since the money never expires) and then contribute to an FSA for expenses they know they'll incur before year-end.

Common mistakes and how to avoid them

The most common mistake is overestimating how much you'll spend and losing money at year-end. To avoid this, track your medical spending from the previous year: add up copays, prescriptions, dental visits, and other out-of-pocket costs. Use that number as your baseline, then adjust up or down based on changes in your health, insurance plan, or life circumstances. If you're unsure, contribute less rather than more.

Another mistake is assuming everything medical is FSA-may be able to access. Cosmetic procedures, gym memberships, and general wellness items are not covered. Before you spend FSA money on something unusual, check with your plan administrator or the IRS list of may be able to access expenses.

A third mistake is losing track of your balance and spending limit. Most FSA plans provide an online portal or mobile app where you can check your balance and see your remaining funds. Check it regularly, especially in November and December, so you know how much you have left to spend before the year ends.

Frequently Asked Questions

Can I use my FSA for my spouse or children?

Yes. FSA money can be used for medical expenses of you, your spouse, and your dependents—even if they're not covered under your health insurance plan. You don't need to be the one receiving the care; you just need to be responsible for paying the bill.

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

You lose access to any unused FSA balance when you leave your employer. Some plans allow a short window (usually 60 days) to submit claims for expenses you incurred while employed, but the money itself is forfeited. This is another reason to be conservative with your contribution amount.

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 needs. A change in your employer's plan also qualifies. Outside of these events, your election is locked in for the year.

Do I need receipts to use my FSA debit card?

It depends on your plan. Some plans require you to submit receipts after you use the card; others verify may be able to access automatically. Check your plan documents or call your plan administrator to understand the documentation requirements. Either way, keep all receipts for at least three years in case of an audit.

Can I roll over unused FSA money to next year?

Most plans do not allow rollovers, but some offer a grace period (usually 2.5 months into the next year) to spend the previous year's money, or a small carryover (up to $570 for 2024). Check your plan documents to see which option applies to you. If your plan offers neither, unused money is forfeited.