A flexible spending account (FSA) is a workplace benefit that allows you to pay for eligible medical, dental, vision, and dependent care expenses with pre-tax dollars. Money you contribute reduces your taxable income, and withdrawals are tax-free as long as they’re used for qualified expenses. You’re paying for costs you’d have anyway, just with pre-tax dollars.
FSAs are offered by employers and set up through payroll. You can’t open one on your own. If your employer doesn’t offer an FSA, you don’t have access to one.
The two types of FSA
Health FSA: Covers medical, dental, and vision expenses not covered by insurance. Prescription copays, glasses, contact lenses, dental work, and many over-the-counter medications and products qualify. The 2025 contribution limit is $3,300 per employee.
Dependent care FSA: Covers childcare and elder care costs that allow you (and your spouse, if applicable) to work. Day care, after-school programs, and summer day camps for children under 13 qualify. Adult day care for a dependent who cannot care for themselves also qualifies. The limit is $5,000 per household per year (or $2,500 if married filing separately).
These are separate accounts. You can have both if your employer offers both. They are also entirely separate from a health savings account (HSA), which is attached to a high-deductible health plan.
How the pre-tax savings work
When you elect an FSA during your employer’s open enrollment, the amount you choose is deducted from your paycheck in equal portions across the year before federal income tax, Social Security tax, and Medicare tax are applied.
For someone in the 22% federal income tax bracket who contributes the full $3,300 to a health FSA, the tax savings across federal income tax, Social Security (6.2%), and Medicare (1.45%) add up to roughly $990 in reduced taxes. The effective cost of $3,300 in medical expenses becomes about $2,310. Your state income tax may add further savings.
The use-it-or-lose-it rule
Health FSA funds generally do not roll over at year-end. If you contribute $2,000 and only spend $1,400 by December 31, you forfeit the remaining $600. Getting your election amount right matters.
Employers can offer one of two relief provisions, but not both. The rollover option lets you carry up to $660 in unused funds into the next plan year; anything above that is forfeited. The grace period option extends the spending deadline by up to 2.5 months into the new year, typically through March 15, with no dollar cap on what you can use during that window.
Your employer chooses which option to offer, if any. Check your plan documents or benefits portal to understand which applies to you.
Dependent care FSAs do not have the same rollover option available under IRS rules. You need to spend those funds within the plan year (or the grace period if your plan offers one).
FSA vs. HSA: key differences
| Feature | Health FSA | HSA |
|---|---|---|
| Requires employer offer | Yes | No (but requires HDHP enrollment) |
| 2025 contribution limit | $3,300 | $4,300 single / $8,550 family |
| Funds roll over | Partial ($660 max rollover) | Yes, indefinitely |
| Investable | No | Yes |
| Available immediately | Full election available January 1 | Only what’s been contributed |
| Portable if you leave job | No | Yes |
The FSA has a significant structural advantage over the HSA in one specific way: the full year’s election is available to you on January 1, even though your contributions are deducted across the year. If you elect $3,300 and need surgery in February, you can spend all $3,300 before most of it has been withheld from your paycheck. The employer essentially fronts the money.
An HSA, by contrast, only lets you spend what has actually been contributed. But HSA funds roll over completely, can be invested, and travel with you when you leave your employer, making the HSA the more powerful long-term savings tool for people who qualify for one.
What qualifies as an eligible FSA expense
IRS Publication 969 and Publication 502 cover eligible expenses in detail. Common eligible expenses include doctor and specialist copays, prescription drugs, dental work (cleanings, fillings, orthodontia), glasses, contact lenses, over-the-counter medications like ibuprofen and allergy drugs, feminine hygiene products, insulin, and mental health treatment copays.
Health insurance premiums, cosmetic procedures, gym memberships, most vitamins and supplements, and teeth whitening don’t qualify.
Keep all receipts. Your FSA administrator may request documentation when you submit a claim, and you’re responsible for ensuring every expense was eligible. In an IRS audit, expenses reimbursed for non-qualifying items are treated as taxable income plus a 20% penalty.
What to do during open enrollment
Estimate your likely eligible out-of-pocket medical expenses for the coming year: anticipated doctor visits, prescription costs, dental work, vision needs. Review what you spent in the prior year as a baseline. If your employer allows the $660 rollover, you can budget slightly more aggressively since a modest overage won’t result in a total loss.
Err on the conservative side if you’re uncertain. The tax savings are real, but forfeiting unused funds erases any benefit from the balance you lose. A $1,500 election you fully use beats a $3,300 election where $800 expires.
If your employer also offers an HSA-eligible health plan alongside a traditional plan, compare the two during enrollment. Depending on your expected medical costs, the HDHP paired with an HSA often delivers more value than the traditional plan with an FSA, particularly for people who are generally healthy.
After setting your election, enroll in any available automatic payment features with your FSA provider. Many debit cards issued by FSA administrators automatically verify eligibility at the point of sale, reducing the friction of claim filing.