How Flexible Spending Accounts Work and What You Can Buy With Them

What a Flexible Spending Account Does

A Flexible Spending Account (FSA) is an employer-sponsored account where you set aside pre-tax money to pay for medical expenses your insurance doesn't cover. You decide how much to contribute each year during open enrollment, the money comes out of your paycheck before taxes, and you use a debit card or submit receipts to reimburse yourself for may be able to access costs.

The tax savings come from the amount you contribute never being taxed as income. If you set aside $2,500 for the year and your tax rate is 25 percent, you save roughly $625 in federal taxes. That's the core benefit: you're paying for medical expenses you'd pay anyway, just with pre-tax dollars instead.

FSAs are separate from health insurance. Your insurance covers major medical events; your FSA covers the gaps—copays, deductibles, prescription costs, dental work, glasses, and dozens of other out-of-pocket expenses that add up quickly.

Key Takeaways

• FSA contributions come from your paycheck before taxes, so you pay for medical expenses with money the government doesn't tax.
• You choose your contribution amount once a year during open enrollment, and that money is locked in for the plan year.
• may be able to access expenses include copays, deductibles, prescription drugs, dental care, vision care, and over-the-counter items with a doctor's note.
• Money left in your FSA at the end of the year is forfeited—you cannot roll it over or take it with you—so estimate carefully.
• If you leave your job, you typically have 60 days to spend remaining FSA funds before the account closes.

What You Can and Cannot Buy

FSA money covers most medical, dental, and vision expenses that you pay out of your own pocket. Copays and coinsurance count. Deductibles count. Prescription medications count. Over-the-counter drugs like ibuprofen and allergy medicine count if you have a doctor's prescription or letter stating medical necessity.

Dental work—cleanings, fillings, root canals, orthodontia—is covered. Vision expenses including eye exams, glasses, contacts, and contact solution are covered. Hearing aids and batteries are covered. Therapy copays, medical equipment like crutches or blood pressure monitors, and even some medical supplies like bandages and glucose test strips are covered.

What's not covered: health insurance premiums, cosmetic procedures (unless medically necessary), vitamins without a prescription, gym memberships, and most over-the-counter items without a doctor's note. Sunscreen, toothpaste, and shampoo are not covered even if they're in a pharmacy. Maternity clothes are not covered. Pet medications are not covered.

The IRS publishes a full list of may be able to access expenses, and your plan administrator can tell you whether a specific item qualifies. When in doubt, ask before you spend.

The Use-It-or-Lose-It Rule and How to Plan

Money left in your FSA at the end of the plan year is forfeited. You cannot roll it over to the next year, and you cannot take it with you if you leave your job. This is the biggest risk of an FSA: if you overestimate your medical expenses, you lose the difference.

Some employers offer a grace period—usually two and a half months into the next plan year—during which you can spend the previous year's leftover money. A few employers offer a carryover of up to $610 (the limit changes yearly). Check your plan documents to see if either applies to you.

To avoid forfeiting money, estimate conservatively. Look at what you actually spent on copays, prescriptions, and dental work last year. Add any planned expenses you know are coming—a scheduled surgery, orthodontia, new glasses. Subtract anything that won't happen again. Most people contribute between $1,000 and $3,000 per year, though the IRS sets an annual maximum that changes yearly.

If you're unsure, contribute less. It's better to miss out on some tax savings than to lose money you've already set aside.

How to Use Your FSA During the Year

Your employer gives you an FSA debit card that works like a regular debit card at pharmacies, doctors' offices, and medical suppliers. Swipe it, and the cost comes out of your FSA balance. Some expenses—like a dental filling or therapy session—may require you to pay upfront and then submit a receipt for reimbursement instead.

Keep all receipts. Your plan administrator may ask you to prove that an expense was may be able to access, especially for over-the-counter items or anything that could be considered personal care. If you can't provide a receipt, the plan can deny reimbursement and ask you to repay the money from your personal account.

You can check your FSA balance online through your employer's benefits portal. Some plans let you set up alerts when your balance gets low. If you're approaching the end of the year with money left over and you haven't used it, you have time to schedule dental work, buy glasses, or stock up on may be able to access over-the-counter items with a prescription.

FSA Contribution Limits and Tax Savings

The IRS sets a maximum FSA contribution each year. For 2024, that limit is $3,200. Your employer may set a lower limit, but not a higher one. The limit changes annually, so check your plan documents each year during open enrollment.

The tax savings depend on your tax bracket. If you contribute $2,500 and you're in the 22 percent federal tax bracket, you save roughly $550 in federal taxes alone. Add state and local taxes, and the savings grow. Self-employed people and those without employer plans cannot open an FSA; they may be able to open a Health Savings Account instead, which has different rules and allows rollovers.

Your contribution is deducted from your paycheck automatically throughout the year, so you don't have to think about it after enrollment. The money sits in your FSA account, earning no interest, waiting for you to spend it on may be able to access expenses.

What Happens When You Leave Your Job

If you leave your employer, your FSA account closes at the end of your employment or at the end of the plan year, whichever comes first. You typically have 60 days after leaving to submit receipts for expenses you incurred while employed, even if you pay the bill after you've left.

Any money left in the account after that window is forfeited. You cannot transfer it to a new employer's FSA, and you cannot roll it into a Health Savings Account. This is another reason to estimate conservatively: if you're planning to leave your job, try to spend down your FSA balance before you go.

If you're laid off or fired, check whether your employer offers COBRA continuation coverage for the FSA. Some do, though it's less common than COBRA for health insurance. If COBRA is available, you can continue using your FSA for a limited time, but you'll pay the full premium yourself.

FSA vs. Health Savings Account: When Each Makes Sense

An FSA and a Health Savings Account (HSA) both offer tax savings on medical expenses, but they work differently and have different rules. An FSA is available through your employer and has no rollover—you lose what you don't spend. An HSA is available only if you're enrolled in a high-deductible health plan, and money rolls over year to year indefinitely, making it a long-term savings tool.

If your employer offers both, you cannot open an HSA while you have an FSA. If your employer offers only an FSA, take it if you have predictable medical expenses. If you have a high-deductible plan and can afford to contribute to an HSA, an HSA is usually the better choice because the money doesn't disappear.

Some employers offer a limited-purpose FSA alongside an HSA. This FSA covers only dental and vision expenses, which are predictable, while the HSA covers everything else and rolls over. Ask your benefits administrator whether this option is available to you.

Frequently Asked Questions

Can I change my FSA contribution during the year?

No, unless 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. Open enrollment happens once a year, usually in the fall, and that's when you set your contribution for the next plan year.

What if I submit a receipt and the plan denies it?

The plan will tell you why—usually because the expense isn't may be able to access or the receipt doesn't show enough detail. You can appeal or resubmit with more documentation. If the denial stands, you'll need to repay the reimbursement from your personal funds.

Can I use my FSA for my spouse or children?

Yes, if they're covered under your health insurance plan. You can use FSA money for their copays, prescriptions, dental work, and other may be able to access expenses. You cannot use it for a spouse or child who isn't on your plan.

What counts as a doctor's prescription for over-the-counter items?

A written prescription from your doctor, a letter from your doctor stating medical necessity, or a prescription note in your medical record. A verbal recommendation doesn't count. Some plans accept a form you fill out and have your doctor sign; ask your plan administrator what they require.

Do I lose my FSA if I go on unpaid leave?

It depends on your employer's plan. Some plans let you continue contributing during unpaid leave; others suspend contributions. Check your plan documents or ask your benefits administrator before taking leave.