How a Flexible Spending Account for Medical Expenses Works

What an FSA for Medical Expenses Covers

A Flexible Spending Account (FSA) for medical expenses, often called a medical FSA or healthcare FSA, is an account where you set aside pre-tax money from your paycheck to pay for out-of-pocket medical costs. The money you contribute reduces your taxable income for the year, which means you pay less in federal income tax and payroll taxes.

The account covers a specific list of medical expenses set by the IRS. These include doctor visit copays, deductibles, prescription medications, dental work, vision care, mental health treatment, and medical equipment like crutches or blood glucose monitors. The IRS publishes the full list of covered expenses in Publication 502, and your employer's plan document will specify which items your particular FSA covers.

What an FSA does not cover: health insurance premiums (with rare exceptions), cosmetic procedures, over-the-counter medications without a prescription, or expenses that your health insurance already paid for. You cannot use FSA money to reimburse yourself for something your insurance covered.

Key Takeaways

• An FSA lets you pay for medical expenses with pre-tax money, lowering both your federal income tax and payroll taxes for the year.
• You choose how much to contribute each year during your employer's open enrollment period, and that money is deducted from your paychecks before taxes.
• You must spend the money on IRS-approved medical expenses or lose it at the end of the year — there is no carryover to the next year in most plans.
• You can withdraw money from your FSA only when you have an actual medical expense to pay, not whenever you want.
• An FSA is different from an HSA (Health Savings Account) because it does not roll over unused money and does not require a high-deductible health plan.

How Much You Can Contribute and When

Your employer sets the contribution limit for their FSA plan, but it cannot exceed the IRS annual limit. For 2024, the IRS limit is $3,200 per person per year. For 2025, it increases to $3,300. These limits change each year, and your employer will tell you the current limit during open enrollment.

You choose your contribution amount once per year, usually in November or December, during your employer's open enrollment period. The money is deducted from your paycheck in equal amounts throughout the year. If you do not contribute during open enrollment, you cannot start an FSA until the next year — there is no mid-year sign-up unless you have a may have access to life event like a marriage, birth, or loss of other health coverage.

may have access to life events that let you change your FSA contribution mid-year include the birth or adoption of a child, a change in your spouse's employment or insurance, a significant change in medical needs, or a change in your dependent care situation. Your employer's human resources department can tell you whether your specific situation qualifies.

The Use-It-or-Lose-It Rule and How to Avoid It

Money in an FSA does not roll over to the next year. If you contribute $2,500 and spend only $2,000, you lose the remaining $500. This is called the use-it-or-lose-it rule, and it is one of the biggest differences between an FSA and an HSA.

Most employers offer a grace period of up to 2.5 months into the next year to spend the previous year's money. For example, if your plan year ends December 31, you may have until March 15 to submit claims for 2024 expenses. Some employers instead allow you to carry over up to $610 (for 2024) into the next year. Your plan document will specify which option your employer uses — ask your benefits administrator to confirm.

To avoid losing money, estimate your medical expenses carefully. Think about prescription refills, dental cleanings, vision exams, and any planned procedures. If you overestimate, you can lower your contribution for the next year during the next open enrollment period.

How to Spend FSA Money and Get Reimbursed

You do not automatically get cash from your FSA. Instead, you pay for a medical expense out of pocket, then submit a claim to your FSA administrator for reimbursement. Some employers issue an FSA debit card that you can use at pharmacies, doctor offices, and other medical providers, but you still need to keep receipts to prove the expense was medical.

To request reimbursement, you submit a claim form (usually online through your employer's benefits portal) along with a receipt or explanation of benefits from your provider. The FSA administrator reviews the claim to confirm it is an IRS-approved medical expense, then sends you a check or deposits the money into your bank account. This process typically takes one to two weeks.

You can only withdraw money when you have an actual medical expense to pay. You cannot withdraw money just because you want access to it, and you cannot use FSA money to pay for non-medical expenses. If you try to withdraw money for an ineligible expense, the FSA administrator will deny the claim.

FSA Versus HSA: When Each Makes Sense

An FSA and an HSA are both tax-advantaged accounts for medical expenses, but they work differently and suit different situations. An FSA is available to anyone with a health insurance plan, while an HSA requires you to have a high-deductible health plan (HDHP). An FSA has a lower annual contribution limit ($3,300 for 2025) than an HSA ($4,150 for individual coverage in 2025), but an FSA money does not roll over while HSA money does.

Choose an FSA if you have predictable medical expenses each year and want to lower your taxes on money you will spend anyway. Choose an HSA if you have a high-deductible plan, can afford to save money for future medical costs, and want the money to grow year after year without losing it. Some employers offer both, and you can have an FSA and an HSA at the same time — but you cannot use both to pay for the same expense.

If you are unsure which account fits your situation, calculate your expected medical costs for the year. If you expect to spend most or all of your contribution, an FSA makes sense. If you expect to spend less than your deductible, an HSA may be better because the money stays in the account.

What Happens to Your FSA If You Leave Your Job

When you leave your job, your FSA ends. You cannot take the account with you to a new employer — each FSA belongs to that specific employer's plan. Any money you have not yet spent is forfeited, even if you have months left in the plan year.

Before you leave, submit any pending claims for expenses you have already incurred. Some employers give you a grace period after you leave to submit claims for expenses that happened while you were employed. Check with your benefits administrator about the deadline for submitting final claims.

At your new job, you can open a new FSA during that employer's open enrollment period or if you have a may have access to life event. The contribution limits and rules may be different, so review your new employer's plan documents.

Common FSA Expenses and What Qualifies

The IRS approves a long list of medical expenses for FSA use. Common ones include prescription medications, insulin and diabetes supplies, copays and coinsurance, deductibles, dental fillings and cleanings, orthodontia, eyeglasses and contact lenses, hearing aids and batteries, physical therapy, mental health counseling, and over-the-counter pain relievers or allergy medicine if you have a prescription from your doctor.

Less obvious expenses that may have access to include acupuncture, chiropractic care, certain medical equipment (crutches, wheelchairs, blood pressure monitors), and transportation to medical appointments if it is the only way you can reach care. Expenses do not may have access to if they are purely cosmetic — for example, teeth whitening or Botox — unless they are medically necessary to treat a specific condition.

To confirm whether a specific expense qualifies, check your plan's summary of benefits or ask your FSA administrator. The IRS rules are detailed, and some expenses fall into gray areas. Getting confirmation before you spend the money prevents a denied claim.

Frequently Asked Questions

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

Yes. Your FSA can pay for medical expenses of you, your spouse, and any dependent you claim on your tax return, regardless of whose name is on the bill. The expense just has to be for an IRS-approved medical service.

What if I do not spend all my FSA money by the end of the year?

You lose the unspent money unless your employer offers a grace period or carryover. Most employers allow a 2.5-month grace period into the next year, or you can carry over up to $610 (for 2024). Check your plan documents or ask your benefits administrator which option applies to you.

Can I change my FSA contribution amount during the year?

Only if you have a may have access to life event, such as a birth, marriage, divorce, or loss of other health coverage. Open enrollment is the normal time to change your contribution. If you think your situation qualifies for a mid-year change, contact your employer's benefits department.

Is an FSA the same as a Health Savings Account?

No. An FSA requires no specific health plan type and does not roll over unused money. An HSA requires a high-deductible health plan and lets you keep money year after year. Both reduce your taxes, but they work differently and suit different situations.

What happens to my FSA if I am laid off or fired?

Your FSA ends when your employment ends. Any unspent money is forfeited. You may have a short window to submit claims for expenses you already incurred, so contact your benefits administrator before you leave to ask about the deadline.