What Is A Flexible Spending Account (FSA)?

An FSA is a tax-advantaged vehicle offered by employers that allows you to save money to pay for qualified health expenses. Your FSA is funded by payroll deductions and you don’t have to pay taxes on any funds that go into the account.

The funds accumulated in an FSA can be used to pay for medical expenses for yourself, your spouse and your dependents within the year.

Each employer decides precisely how its healthcare or medical FSA plan works. As a general rule, once you incur a medical expense, you use a debit card provided to you or use the system your employer has set up to submit a claim for reimbursement.

You may need to submit proof of the expense, such as a receipt, and include a statement to the effect that your health insurance plan didn’t cover the cost of the claim you are submitting.

Employers may provide a debit card for FSAs to make the process of paying expenses easier. But even if you have this option, you must retain proof of the expenses you incur.

An FSA can be used to pay for many—but not all—health expenses you may incur over the course of a year. Such expenses may include:

• Copayments.
• Health insurance deductibles.
• Coinsurance.
• Many prescription drugs.
• Insulin.
• Medical devices and equipment, including things like crutches and blood sugar test kits.
• Over-the-counter medicines.
• Menstrual care products.

As a general rule, you can use an HSA to pay for most medical and dental expenses that the IRS allows you to deduct from your taxes. IRS publication 502, Medical and Dental Expenses, has more details.

An FSA can’t be used to pay for a handful of medical expenses. They include:

• Health insurance premiums.
• Long-term care coverage or expenses.
• Expenses associated with another health plan.

This last point is an important one: If your health insurance or dental insurance policy reimburses you for an incurred expense, you can’t “double-dip” and make a claim for reimbursement via your FSA.

An FSA account comes with several pros and cons.

Pros	Cons
You can save for and pay for healthcare expenses tax-free.	The amount you can contribute is less than in a health savings account (HSA).
You don’t need to have a high-deductible health plan to participate.	You lose money if you don’t use the contributions to pay for qualified health expenses within the plan year.
The plan is easy to use—just follow your employer’s instructions.	You can’t grow FSA contributions by investing them in stocks.

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Flexible spending accounts and health savings accounts (HSAs) are both vehicles that allow you to pay for medical expenses with tax-free money but FSA vs. HSA has some key differences.

An FSA is an employer-based account where you can contribute money (a maximum of $3,200) to pay for medical expenses you incur within a period, depending on your employer’s rules. You lose the money if you don’t use the funds within that time frame.

By contrast, an HSA lets you save for long-term healthcare costs. It’s also portable so you can take it with you to another company. Contribution limits for HSAs are higher—for 2024, the limits are $4,150 to an HSA for self-only coverage and up to $8,300 for family coverage—and you can carry the money over from year to year.

Many HSA plans also allow you to put some of your money in the stock market to grow the account. You must have a high-deductible health insurance plan (HDHP) to contribute to an HSA.

There are other savings accounts beyond healthcare FSA that have more limitations for how you can use the funds.

Type of FSA	What it can
Healthcare FSA	Healthcare costs like copays, deductibles, prescriptions and over-the-counter medications.
Dependent Care FSA	A dependent’s care, including day care and senior day care.
Limited purpose FSA (LP-FSA)	Dental, vision and preventive care costs until reaching your deductible and then you can use the account for qualifying health costs.
Post-deductible FSA	Vision and dental costs until you reach your policy’s deductible and then any qualifying health costs.

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Healthcare FSA

You can contribute tax-free money to a healthcare FSA to pay for many types of healthcare and health insurance costs. A healthcare FSA has fewer limitations than other types of FSAs.

Costs you can pay for include health insurance deductibles, coinsurance, copays, prescription drugs and over-the-counter drugs. You can’t carry over money and you lose any money you don’t use.

You also can’t take an FSA with you if you change jobs.

Dependent Care FSA

Like a standard FSA, a dependent care FSA is funded by payroll deductions before taxes. A dependent care FSA gives you a tax-free way to pay for the care of your children that are under age 13 or to pay adult dependent care expenses.

Those expenses typically must be tied to care provided to eligible dependents while you or your spouse were working, looking for work or attending school full time.

Such expenses may include:

• Day care.
• Pre-school.
• Senior day care.
• Summer camp.

Single parents and married couples filing joint tax returns may contribute up to $5,000 a year. If you’re married and filing separately, each spouse can contribute up to $2,500.

Limited Purpose FSA (LP-FSA)

LP-FSA is limited to pay only for dental, vision and preventive care costs. After reaching your deductible, you can also use money to pay for eligible expenses found in a healthcare FSA.

You’re able to contribute up to $3,200 to an LP-FSA just like a healthcare FSA. These accounts are connected to a high-deductible health plan.

Depending on your LP-FSA, you may be able to carry over a portion of funds to the next year.

Post-Deductible FSA

A post-deductible FSA is similar to an LP-FSA. It’s only for dental and vision costs until you reach your dental or vision policy’s deductible.

Once you reach your policy’s deductible, you can use FSA funds to pay for any qualifying healthcare costs. That includes paying copays, prescriptions and over-the-counter medications.

1. Employee Benefit Research Institute
2. U.S. Bureau of Labor Statistics, Employee Benefits Statistics
3. HealthCare.gov, Using a Flexible Spending Account
4. IRS, Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
5. IRS, Publication 502, Medical and Dental Expenses
6. UMR, Frequently Asked Questions about the FSA Debit Card
7. IRS, 2024 HSA contribution limits
8. Optum Bank, Flexible Spending Accounts
9. University of Michigan, Dependent Care Flexible Spending Accounts
10. U.S. Office of Personnel Management