A Flexible Spending Account, or FSA, is an employer-sponsored benefit that lets you set aside pre-tax dollars to pay for eligible healthcare and dependent care expenses. The money is deducted from your paycheck before federal income taxes are applied, reducing your taxable income. It is one of the most effective ways to get an immediate discount on predictable out-of-pocket medical costs — but the rules around it are strict, and unused money has limits on how much you can carry forward.
Types of FSAs
Health FSA
The most common type. Funds can be used for eligible medical, dental, and vision expenses not covered by insurance. Examples include deductibles, copays, prescription drugs, glasses and contact lenses, dental cleanings, and many over-the-counter items like pain relievers, antacids, and first aid supplies.
Dependent Care FSA
Used to pay for care expenses for a dependent who is a child under 13 or a qualifying adult who cannot care for themselves — typically a spouse or parent. Eligible expenses include daycare, preschool, after-school programs, and summer day camps. This is separate from the Health FSA and has a different contribution limit.
Limited Purpose FSA
Paired with a Health Savings Account (HSA). Since you cannot contribute to an HSA and a general Health FSA at the same time, a Limited Purpose FSA covers only dental and vision expenses, preserving HSA eligibility.
2026 Contribution Limits
The IRS adjusts FSA limits annually. For 2026:
- Health FSA: Up to $3,300 per employee
- Dependent Care FSA: Up to $5,000 per household ($2,500 if married filing separately)
These are employee contribution limits. Some employers also contribute to Health FSAs, which does not reduce your own contribution limit.
The Use-It-or-Lose-It Rule
This is the most important feature to understand before electing an FSA. Unlike an HSA, FSA funds do not automatically roll over from year to year. If you do not spend your balance by the plan year’s deadline, you typically forfeit the unused amount.
However, employers can offer one of two options to ease this rule (they are not required to offer either):
- Grace period. An additional 2.5 months after the plan year ends to spend remaining funds. So if your plan year ends December 31, you have until March 15 to use leftover money.
- Rollover. Up to $660 (for 2026, adjusted annually) can be carried into the next plan year without a grace period.
Check with your employer to see which option, if either, applies to your plan. If your plan has neither, you must use your full balance by the end of the year or lose it.
The Front-Loading Feature
One unusual feature of Health FSAs is that your full annual election is available on day one of the plan year, even though your contributions come out of each paycheck over the full year. If you elected $2,000 for the year and have a $1,500 dental procedure in January, you can be reimbursed for the full $1,500 immediately — even though you have only contributed a fraction of that amount through payroll so far.
This is an interest-free loan from your employer for anticipated medical expenses. If you leave your job mid-year having spent more than you contributed, you generally do not owe the difference back.
What Expenses Are FSA-Eligible?
The IRS defines eligible expenses under Section 213(d). A broad overview:
- Doctor visit copays and deductibles
- Prescription medications
- Over-the-counter medications (no prescription required since 2020)
- Dental care: cleanings, fillings, extractions, orthodontia
- Vision care: exams, glasses, contacts, solution
- Mental health treatment and therapy
- Physical therapy and chiropractic care (with medical necessity)
- Medical equipment: blood pressure monitors, diabetic supplies, crutches
- Feminine hygiene products
- Sunscreen (SPF 15 or higher)
Expenses that are not FSA-eligible include cosmetic procedures, gym memberships, vitamins (unless prescribed), and health insurance premiums. When in doubt, check your FSA administrator’s eligible expense list.
How to Use Your FSA
Most employers provide an FSA debit card linked to your account balance. Swipe it at point of sale for eligible expenses. For reimbursement of out-of-pocket costs, submit a claim through your FSA portal with the receipt or Explanation of Benefits (EOB). Keep all receipts — the IRS can require documentation of eligible expenses.
FSA vs. HSA: Which Is Better?
If you have access to both (through a High Deductible Health Plan), the HSA is generally the stronger long-term tool because funds carry over indefinitely, the account is yours regardless of employment, and the triple tax advantage is difficult to beat. However, an FSA through a non-HDHP employer still delivers meaningful tax savings and is worth using for predictable annual medical costs.
Open Enrollment Strategy
The key to getting full value from an FSA is accurately estimating your out-of-pocket medical expenses for the year. Think through expected costs: planned surgeries or procedures, ongoing prescription costs, annual dental and vision expenses. Elect an amount you are confident you will spend. If your plan has neither a grace period nor a rollover, do not over-elect.
Bottom Line
An FSA is a straightforward tax-savings tool for predictable healthcare costs. Contribute what you expect to spend, take advantage of the front-loading feature when needed, and track your balance throughout the year to avoid forfeiture. If your employer offers it and you have regular out-of-pocket medical expenses, not using an FSA is leaving money on the table.