What is an FSA
A Flexible Spending Account (FSA) is an employer-sponsored benefit that lets you set aside pre-tax dollars to pay for eligible medical expenses, reducing your taxable income.
A Flexible Spending Account (FSA) is a tax-advantaged benefit account offered through your employer that lets you set aside money from your paycheck — before taxes — to pay for eligible health care expenses. By using pre-tax money, you effectively get a discount on medical expenses equal to your marginal tax rate (typically 22–32% for most workers).
FSAs are available regardless of what health plan you're enrolled in, unlike an HSA, which requires enrollment in a qualifying HDHP.
How an FSA Works
- During open enrollment, you elect how much to contribute for the plan year (up to the annual IRS limit).
- Your employer divides that total across your paychecks as pre-tax deductions.
- The full elected amount is available on Day 1 of the plan year (this is a key difference from HSAs).
- You pay for eligible expenses with an FSA debit card or submit claims for reimbursement.
- Unused funds at year-end may be forfeited under the "use-it-or-lose-it" rule.
FSA Contribution Limits (2025)
| Type | 2025 Limit |
|---|---|
| Health FSA | $3,300 |
| Dependent Care FSA | $5,000 ($2,500 married filing separately) |
Eligible FSA Expenses
Health FSA funds can be used for a broad range of expenses, including:
- Doctor and specialist visit costs
- Prescription drugs and some over-the-counter medications
- Copays and deductible payments
- Dental care (fillings, crowns, orthodontia)
- Vision care (glasses, contacts, LASIK)
- Medical equipment (crutches, blood pressure monitors)
- Mental health services
The Use-It-Or-Lose-It Rule
This is the FSA's biggest drawback. Unlike an HSA, FSA funds do not roll over indefinitely. IRS rules allow one of two options:
- Grace period: Employees have until March 15 of the following year to spend prior-year funds.
- $660 rollover (2025): Employers can allow up to $660 in unused funds to roll to the next plan year.
Employers choose which option to offer — some offer neither, meaning any unused balance is forfeited. This makes estimating your annual medical expenses carefully before electing an FSA amount critical.
FSA vs. HSA: Key Differences
| Feature | FSA | HSA |
|---|---|---|
| Health plan required | Any | HDHP only |
| Rollover | Limited or none | Full, unlimited |
| Investment option | No | Yes |
| Funds available day one | Yes (full amount) | Only what you've deposited |
| Employer can contribute | Yes | Yes |
| Portable if you leave employer | No | Yes |
Dependent Care FSA
A separate account type — the Dependent Care FSA — covers childcare expenses (daycare, after-school care, summer day camps) for children under 13, or the care of a dependent adult who can't care for themselves. This is separate from the health FSA and has its own contribution limit of $5,000 per household.
Tips for Maximizing Your FSA
- Estimate your predictable spending: copays, prescriptions, dental work, glasses.
- Remember that FSA money is available from January 1, so you can use it for a large expense early in the year even before you've contributed that much.
- Check your FSA balance in November and December and schedule remaining care (dental cleanings, glasses, prescriptions) before year-end.
- Use your FSA debit card to simplify recordkeeping — most expenses are auto-approved electronically.