A flexible spending account (FSA) is an employer-sponsored benefit that lets you set aside pre-tax money from your paycheck to pay for eligible medical expenses or dependent care costs. Because the money comes out before federal income tax and payroll taxes are calculated, you effectively get a discount on those expenses equal to your tax rate. Someone in the 22% federal tax bracket who puts $2,000 into a health FSA saves roughly $440 in federal income tax alone, plus additional savings on Social Security and Medicare taxes.
How an FSA Works
When you enroll in an FSA, you choose how much to contribute for the year. That amount is divided evenly across your paychecks as a pre-tax deduction. When you have an eligible expense, you submit a claim to your FSA administrator (usually a third-party company your employer contracts with) along with proof of the expense and a statement that it wasn’t already covered by your health plan. You then get reimbursed from your account balance.
Many FSAs also issue a debit card linked to your account, which lets you pay for eligible items at the point of sale without filing a claim afterward. Your employer may also contribute to your FSA, though most don’t.
One important feature of a health FSA: your full annual election amount is available on day one of the plan year, even though you haven’t contributed it all yet. If you elect $3,000 for the year and need surgery in January, you can use the full $3,000 immediately, even though only a fraction has been deducted from your pay so far.
Types of FSAs
There are three main types of flexible spending accounts, each covering different expenses.
Health Care FSA
This is the most common type. A health care FSA reimburses you for qualified medical, dental, and vision expenses that your insurance doesn’t fully cover. That includes copays, deductibles, prescription drugs, eyeglasses, contact lenses, and dental work. Over-the-counter medications like ibuprofen, allergy medicine, cold medicine, cough syrup, and acetaminophen are all eligible without a prescription. Menstrual care products, including tampons and sanitary pads, also qualify.
For 2026, you can contribute up to $3,400 to a health care FSA. Your employer sets the actual cap, which may be lower than the IRS maximum.
Dependent Care FSA
A dependent care FSA covers expenses related to caring for a child under 13 or a qualifying dependent who can’t care for themselves, so that you (and your spouse, if married) can work. Eligible costs include daycare, preschool, before- and after-school programs, summer day camp, and elder care for a qualifying dependent. Overnight camp does not qualify.
The contribution limit for a dependent care FSA is $5,000 per household, or $2,500 if you’re married and filing separately.
Limited-Purpose FSA
A limited-purpose FSA is a restricted version of the health care FSA designed for people who also have a health savings account (HSA). Because having a regular health care FSA would disqualify you from contributing to an HSA, the limited-purpose version covers only dental, vision, and preventive care expenses. This lets you keep HSA eligibility while still getting tax-free money for those specific costs.
The Use-It-or-Lose-It Rule
The biggest catch with FSAs is that unspent money doesn’t automatically roll over. The IRS requires that funds left in your account after the plan year ends are forfeited. This is why careful planning matters when choosing your contribution amount.
Your employer can soften this rule by offering one of two options, but not both. The first is a grace period of up to two and a half extra months after the plan year ends, during which you can still incur expenses and use leftover funds. The second is a carryover provision, which for 2025 lets you roll up to $660 of unused health FSA funds into the next plan year. Your employer isn’t required to offer either option, so check your specific plan details during enrollment.
Dependent care FSAs do not have a carryover option, but they may include a grace period. Under a typical calendar-year plan, you’d have until March 15 to use remaining dependent care funds from the previous year.
Eligible Expenses at a Glance
The list of FSA-eligible expenses is broader than many people realize. Here are common categories for a health care FSA:
- Doctor and hospital costs: copays, coinsurance, deductibles, lab fees
- Prescription drugs: any medication prescribed by a doctor
- Over-the-counter medications: pain relievers, antacids, allergy medicine, cold and cough medicine
- Vision: eye exams, prescription glasses, contact lenses, lens solution
- Dental: cleanings, fillings, crowns, orthodontia
- Menstrual products: tampons, pads, and other feminine hygiene products
- Medical equipment: bandages, first aid kits, blood pressure monitors, thermometers
Cosmetic procedures, gym memberships, and health insurance premiums are not eligible. When in doubt, your FSA administrator’s website will have a searchable list of qualifying items.
How to Enroll
FSAs are only available through an employer that offers them as part of its benefits package. You typically enroll during your company’s open enrollment period, which for most employers falls in the autumn before the new plan year. You can also enroll when you first become eligible for benefits as a new hire.
Outside of open enrollment, you can only change your FSA election if you experience a qualifying life event, such as getting married, having a baby, or losing other coverage. You cannot adjust your contribution mid-year just because you’ve spent less than expected.
How FSAs Differ From HSAs
FSAs and health savings accounts both offer tax advantages for medical expenses, but they work differently in several important ways.
Ownership is the biggest distinction. An FSA is owned by your employer. If you leave your job, you forfeit any remaining balance unless you elect COBRA continuation coverage. An HSA, by contrast, belongs to you permanently, even if you switch jobs or retire.
Eligibility rules also differ. Anyone whose employer offers an FSA can participate, regardless of what type of health plan they have. An HSA requires enrollment in a high-deductible health plan and no other disqualifying coverage.
FSA funds generally must be spent within the plan year (with the possible grace period or carryover described above). HSA funds never expire and can be invested and grown over time, making them useful as a long-term savings vehicle. If your employer offers both and you’re enrolled in a high-deductible plan, you can pair an HSA with a limited-purpose FSA to maximize your tax savings.
Choosing the Right Contribution Amount
Because of the use-it-or-lose-it rule, the goal is to contribute an amount close to what you’ll actually spend. Start by reviewing last year’s medical and dental expenses: look at insurance explanation-of-benefits statements, pharmacy receipts, and any out-of-pocket costs for glasses or contacts. If you have predictable recurring expenses like monthly prescriptions, orthodontia payments, or regular therapy visits, those are easy to estimate.
If your employer offers the carryover option, you have a small cushion for overestimating. If it offers a grace period instead, you get extra time but still need to spend the money. When in doubt, it’s better to estimate conservatively and leave a little tax savings on the table than to forfeit hundreds of dollars at year’s end.