What Is a Flexible Spending Account (FSA)?

Key Takeaways

FSAs are employer-established accounts that let you pay for eligible medical expenses with pre-tax dollars, reducing your taxable income.

The IRS sets annual contribution limits, which are $3,400 for Healthcare FSAs and $7,500 for Dependent Care FSAs in 2026.

Pre-tax contributions lower the taxes you pay, saving you money on qualified health care costs throughout the year.

FSAs follow use-it-or-lose-it rules, though employers may offer a 2.5-month grace period or allow you to carry over up to $680.

What Does Flexible Spending Account Mean?

A Flexible Spending Account is a tax-advantaged account your employer establishes to help you pay for eligible out-of-pocket health care costs with pre-tax dollars. You can contribute up to $3,400 to a Healthcare FSA in 2026. You elect a contribution amount at the start of each plan year, and the money is deducted from your paycheck before taxes, reducing your taxable income.

You decide your annual contribution during open enrollment
The IRS sets annual contribution maximums updated each year
FSAs follow use-it-or-lose-it rules with limited exceptions
Your employer may offer a 2.5-month grace period or carryover options

TYPES OF FLEXIBLE SPENDING ACCOUNTS

Healthcare FSA: This is the most common FSA type, covering medical, dental and vision expenses your health insurance doesn't fully pay. Maximum contribution is $3,400 in 2026.
Dependent Care FSA: Pays for childcare or eldercare expenses while you work. Maximum contribution is $7,500 annually in 2026 ($3,750 if married filing separately).
Limited Purpose FSA: For dental and vision expenses only, this account works with Health Savings Accounts (HSAs) if you have a high-deductible health plan.
Post-Deductible FSA: Eligible expenses after you meet your health plan's deductible qualify under this HSA-compatible option for strategic health care savings.

What Can You Use an FSA For?

Your FSA covers qualified medical expenses your health insurance plan doesn't fully pay. These accounts pay for out-of-pocket costs like deductibles, copays and coinsurance for medical, dental and vision care.

Medical Expenses

Deductibles, copayments and coinsurance for doctor visits, hospital stays, lab tests and diagnostic services count as FSA-eligible expenses.

Prescription Medications

Prescription drugs and insulin qualify for FSA reimbursement. Over-the-counter medications require a prescription to be FSA-eligible, though some exceptions apply.

Dental Care

Cleanings, fillings, crowns, orthodontics and other dental treatments qualify. Regular preventive care and necessary procedures are FSA-eligible.

Vision Care

Eye exams, prescription glasses, contact lenses, lens solution and reading glasses qualify for FSA coverage.

Specialist Treatments

Physical therapy, chiropractic care, acupuncture and occupational therapy qualify when medically necessary. Mental health counseling also counts as an eligible expense.

Personal Protective Equipment

Hand sanitizer, sanitizing wipes and face masks became FSA-eligible expenses. These items help you stay protected while managing health care costs.

Check your FSA plan documentation for a complete list of eligible expenses.

What Expenses Are Not FSA-Eligible?

FSAs have restrictions on ineligible expenses. Health insurance premiums for medical, dental or vision coverage can't be paid with FSA funds. Long-term care insurance or direct care costs don't qualify for FSA reimbursement.

Cosmetic procedures not medically necessary
Most vitamins and supplements unless prescribed by a doctor (prenatal vitamins are an exception)
Expenses already reimbursed by another health plan
CBD products

Per IRS guidelines and HealthCare.gov, these restrictions prevent double-dipping and make sure FSA funds cover only qualified medical expenses.

What Is the Difference Between an FSA and an HSA?

FSAs and HSAs both offer tax advantages for health care costs, but work differently. An FSA is employer-tied and requires you to use funds within the plan year, while an HSA belongs to you and lets funds roll over indefinitely. You can open an FSA if your employer offers an FSA as part of the company benefits package through the Health Insurance Marketplace, but HSAs require enrollment in a high-deductible health plan.


Eligibility and Enrollment	Available if your employer offers an FSA, regardless of your health plan type	Requires enrollment in a high-deductible health plan with minimum deductibles set by the IRS
Ownership and Portability	Owned by your employer and ends with employment unless continued through COBRA	Owned by you, portable between jobs and into retirement without restrictions
Contribution Limits (2026)	Healthcare FSA: $3,400 Dependent Care FSA: $7,500 ($3,750 married filing separately)	Individual: $4,300 Family: $8,550
Carryover and Rollover	Use-it-or-lose-it policy, though some plans allow up to $680 carryover or a 2.5-month grace period	Funds roll over annually without limit, letting you build reserves for future medical expenses
Tax Benefits	Reduces taxable income through pre-tax contributions; withdrawals tax-free for qualified medical expenses	Contributions reduce taxable income; earnings grow tax-free; withdrawals tax-free for medical expenses
Investment Options	No investment options; operates as a spending account for immediate medical needs	Offers investment options after reaching minimum balance; funds grow tax-free like retirement accounts

What Are the Pros and Cons of FSAs?

FSAs offer tax savings and flexibility but require careful planning because of use-it-or-lose-it rules. Review both advantages and drawbacks carefully to decide if an FSA fits your financial situation and health care needs.

Benefits and Disadvantages of FSAs

FSAs reduce taxable income through pre-tax contributions, lowering the taxes you pay on eligible medical expenses.
You can use FSA funds for medical, dental, vision and prescription expenses not covered by your insurance plan.
The full annual contribution is available immediately at the start of the plan year for large upfront medical costs.
FSAs lower your out-of-pocket health care costs substantially through tax savings on qualified medical expenses.

Use-it-or-lose-it rules create forfeiture risk if you don't spend all contributed funds within the plan year or grace period.
FSAs are employer-tied accounts that limit portability. You typically forfeit unused funds when leaving your job.
Accurate expense planning is required. Unexpected changes in medical needs can result in over- or under-contribution.
Health insurance premiums can't be paid with FSA funds, limiting the coverage types FSAs can help with.

Is an FSA Right for You?

Whether an FSA fits your situation depends on expense predictability, job stability and your ability to estimate annual health care costs. FSAs reduce taxable income when used strategically but require careful planning to avoid forfeiting unused funds.


You have predictable medical expenses like regular prescriptions, recurring treatments or planned procedures	Good fit	FSAs reduce taxable income through pre-tax contributions. With known expenses, you can estimate contributions accurately and avoid forfeiting unused funds. Contribute conservatively based on minimum expected costs.
You change jobs frequently or plan to leave your employer within the year	Not recommended	FSAs are employer-tied. You typically forfeit unused funds when leaving your job. Consider portable options that stay with you between employers or contribute only amounts you'll spend before departure.
You have dependent care expenses for children under 13 or incapable dependents requiring care while you work	Good fit	Dependent Care FSAs provide tax savings up to $7,500 annually in 2026 for care expenses. This is separate from Healthcare FSAs and addresses different financial needs for working families.
You have a high-deductible health plan and are considering your savings options	Consider carefully	If HSA-eligible, compare long-term benefits. HSAs offer fund rollover and investment growth. Limited Purpose FSAs can work alongside HSAs for dental and vision expenses only. Evaluate which combination fits your needs.
Your medical expenses vary year-to-year and are hard to predict with accuracy	Consider carefully	Use-it-or-lose-it rules create forfeiture risk with unpredictable costs. Contribute conservatively based on minimum expected expenses. Verify your employer's plan offers grace periods or carryover options to reduce risk.

Flexible Spending Account: FAQ

We've addressed frequently asked questions about Flexible Spending Accounts to help you understand how these tax-advantaged accounts work:

How does an FSA work?

FSAs let you allocate pre-tax dollars from your salary into an account managed by your employer. You use this money to pay for eligible health care expenses, reducing your taxable income and increasing spending power for medical needs.

Who can open an FSA?

You can open an FSA if your employer offers an FSA as part of the company benefits package. FSAs are available regardless of your health plan type, though contribution limits and carryover rules vary by employer.

Can you use an FSA for dental and vision?

Yes, FSAs cover dental treatments like cleanings and fillings, plus vision expenses including eye exams, prescription glasses and contact lenses. These qualify as eligible medical expenses under IRS rules.

Can you have both an FSA and HSA?

You can't have a general Healthcare FSA and HSA simultaneously. Limited Purpose FSAs that cover only dental and vision expenses work alongside HSAs if you have a high-deductible health plan.

What happens if you don't use all your FSA money?

Unused FSA funds are typically forfeited at plan year end under use-it-or-lose-it rules. Your employer may offer a 2.5-month grace period or allow up to $680 carryover to the following year, but not both options.

About Mark Fitzpatrick

Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. He has analyzed the insurance market for over five years, conducting original research for insurance shoppers. His insights have been featured in CNBC, NBC News and Mashable.

Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!

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sources

IRS.gov. "IRS releases tax inflation adjustments for tax year 2026." Accessed February 27, 2026.
HealthCare.gov. " Using a Flexible Spending Account (FSA)." Accessed February 27, 2026.