How a Healthcare FSA Works and What You Can Buy With It

A Healthcare FSA lets you set aside pre-tax money from your paycheck to pay for medical expenses your insurance doesn't cover

A Flexible Spending Account for healthcare (often called a healthcare FSA or medical FSA) is an account your employer offers where you can put aside money before taxes are taken out. You use that money to pay for out-of-pocket medical costs — copays, deductibles, prescriptions, dental work, vision care, and dozens of other expenses. The tax savings come because the money you contribute is not subject to federal income tax or payroll taxes.

The catch is that healthcare FSAs operate on a "use it or lose it" rule: money you don't spend by the end of the plan year (usually December 31) goes back to your employer. Some plans allow a small carryover or a grace period, but most do not. This means you need to estimate carefully how much medical spending you'll actually have.

Healthcare FSAs are different from Health Savings Accounts (HSAs), which let you roll money over year to year and invest it. They're also different from Dependent Care FSAs, which cover childcare and adult daycare only. A healthcare FSA is specifically for medical, dental, vision, and related health expenses.

Key Takeaways

• You contribute pre-tax money through payroll deductions, which reduces your taxable income and the taxes you owe that year.
• You can use FSA funds to pay for copays, deductibles, prescriptions, dental care, vision care, and many other medical expenses your insurance doesn't fully cover.
• Money left unspent at the end of the plan year is forfeited to your employer unless your plan offers a carryover or grace period.
• You must enroll during your employer's open enrollment period, usually once a year, and your election stays in place for the full plan year.
• You access the money through a debit card, reimbursement request, or direct payment to providers, depending on how your employer's plan works.

How much you can contribute and who can open one

Your employer decides whether to offer a healthcare FSA, so not all workers have access to one. If your employer does offer it, you can enroll only during open enrollment — typically a window of 30 to 45 days once per year, often in the fall for a plan year starting January 1.

The IRS sets an annual contribution limit. For 2024, the limit is $3,200 per person per year. For 2025, it remains $3,200. Your employer may set a lower limit, but cannot allow you to contribute more than the IRS maximum. You decide how much to contribute when you enroll, and that amount is divided into equal paycheck deductions throughout the year.

You can only change your contribution amount if you have a may have access to life event — marriage, divorce, birth or adoption of a child, loss of health coverage, or a significant change in your spouse's benefits. A simple change of mind during the year is not a may have access to event, so choose carefully at enrollment time.

What medical expenses you can pay for with an FSA

The IRS maintains a list of may have access to medical expenses you can pay for with FSA funds. Common ones include copays and coinsurance, deductibles, prescription medications, insulin, and medical equipment like crutches or blood pressure monitors. Dental work (cleanings, fillings, root canals, orthodontia) and vision care (eye exams, glasses, contact lenses) are covered. Mental health counseling and therapy are covered. Physical therapy, chiropractic care, and acupuncture count if a doctor prescribes them.

Some expenses surprise people. You can use FSA money for over-the-counter medications like pain relievers and allergy pills, but only if you have a prescription from a doctor — a simple purchase without a prescription does not count. You can pay for certain medical supplies: bandages, heating pads, crutches, wheelchairs, and glucose monitors. You cannot use FSA funds for cosmetic procedures, gym memberships, or general wellness products like vitamins (unless prescribed for a specific medical condition).

The IRS publishes a searchable database of may have access to expenses on its website. When you're unsure whether something counts, check there or ask your FSA plan administrator before you spend the money — getting reimbursed for an ineligible expense can create a tax problem.

How the use-it-or-lose-it rule works and what happens to leftover money

At the end of your plan year, any money still in your FSA account is forfeited. You cannot roll it over to the next year, and you cannot take it out as a refund. The money goes back to your employer, which typically uses it to offset the cost of running the FSA program.

Some employers offer a grace period of up to 2.5 months into the next year (so through mid-March if your plan year ends December 31). During the grace period, you can spend money from the previous year's account on may have access to expenses. Not all employers offer this, so check your plan documents.

A smaller number of employers allow a carryover of up to $640 per year (for 2024 and 2025). If your plan allows carryover, any unused money up to that limit rolls into the next year's account. Again, this is optional for employers, so confirm whether your plan includes it.

Because of this rule, the biggest mistake people make is overestimating their medical spending and losing money. If you're unsure, contribute a conservative amount — you can always use the money for routine expenses like copays and prescriptions that you know will happen.

How to access your FSA money and submit for reimbursement

Your employer's FSA plan will give you one or more ways to access the money. Many plans issue a debit card that you can use at pharmacies, doctor's offices, and other healthcare providers. The card is linked to your FSA account, and the purchase is deducted automatically. Some plans require you to pay out of pocket and then submit a reimbursement request to the plan administrator with receipts and proof of the expense.

If you use the debit card, keep your receipts anyway. The plan administrator may ask you to provide proof that the purchase was for a may have access to expense, especially if the merchant's name is unclear. For example, if you buy bandages at a general store, the receipt shows the store name, not the item, so you may need to provide additional documentation.

Some employers use a third-party FSA administrator like WageWorks, Conduent, or HealthEquity to manage the account. Your employer will tell you which one handles your plan and how to submit claims — usually through an online portal or mobile app. Reimbursement typically takes one to two weeks after you submit.

Healthcare FSA versus Health Savings Account: which is right for you

If your employer offers both a healthcare FSA and an HSA, you cannot have both at the same time. You must choose one during open enrollment. The choice depends on your health plan and how much you spend on medical care.

An HSA is available only if you're enrolled in a high-deductible health plan (HDHP). It lets you roll money over year to year and invest it for growth, making it better for long-term savings. You can withdraw money tax-free for may have access to medical expenses at any age, or withdraw it for any reason after age 65 (with taxes owed on non-medical withdrawals). An HSA is more flexible because you don't lose unspent money.

A healthcare FSA has no investment option and no carryover (unless your plan allows it), but it offers an immediate tax break on money you know you'll spend this year. If you have predictable medical expenses — regular prescriptions, ongoing therapy, scheduled dental work — an FSA lets you save on taxes right away. If your medical spending is unpredictable or you want to save for future healthcare costs, an HSA is usually the better choice.

Frequently Asked Questions

Can I use my FSA debit card at any store, or only at pharmacies and doctor's offices?

FSA debit cards work only at merchants that sell may have access to medical expenses. You cannot use it at a grocery store to buy food, even if you also buy over-the-counter medicine there. At pharmacies and medical providers, the card usually works without issue. At other retailers, the card may be declined if the system doesn't recognize the merchant as a healthcare provider.

What happens to my FSA if I leave my job?

When you leave your job, your FSA account closes. You have a limited time (usually 60 to 90 days) to submit reimbursement requests for expenses you incurred while employed. Any money left unspent after that deadline is forfeited. If you move to a new job with an FSA, you start fresh with a new account and new contribution election.

Can I use my FSA to pay for my spouse's or children's medical expenses?

Yes. FSA money can be used for may have access to medical expenses of you, your spouse, and your dependents, regardless of whether they're covered under your health insurance plan. You don't need to be the one receiving the care — you just need to be responsible for paying the bill.

Do I have to submit receipts every time I use my FSA debit card?

Not always. Many transactions go through without requiring proof. However, the plan administrator can ask you to provide a receipt or explanation of benefits at any time, especially if the merchant category is unclear. Keep all receipts for at least three years in case you're asked to verify a purchase.

Can I change my FSA contribution amount mid-year?

Only if you have a may have access to life event like marriage, divorce, birth, adoption, or a change in your spouse's health coverage. A change of mind or a change in your medical needs does not count as may have access to. You're locked into your election for the full plan year unless one of these events occurs.