FSA (Flexible Spending Account)
A pre-tax account for healthcare expenses available with most employer-sponsored health plans — but funds typically must be used within the plan year.
Definition
A Flexible Spending Account (FSA) is a special account you contribute to through payroll deductions, allowing you to pay for eligible healthcare expenses with pre-tax dollars. Because contributions are pre-tax, you effectively save your marginal tax rate (typically 22–32%) on every dollar you spend through the FSA.
Key FSA characteristics:
- Available with most employer-sponsored health plans (not limited to HDHPs like HSAs)
- Contributions are pre-tax through payroll; you can't contribute directly
- Funds are available immediately at the start of the year (even before you've contributed them through payroll)
- Use-it-or-lose-it rule: funds not used by year-end are forfeited (with some plan flexibility — see below)
2026 FSA contribution limit: $3,300 per individual (employer may also contribute)
Rollover and grace period rules: Employers can allow one of two options: roll over up to $660 to the next year, OR offer a 2.5-month grace period to spend the remaining balance. Not all plans offer these — check your plan.
Types of FSAs:
- Health FSA — for medical, dental, and vision expenses
- Dependent Care FSA — for childcare and eldercare expenses (separate account, separate limit of $5,000)
- Limited Purpose FSA — dental and vision only; compatible with an HSA
Examples
You contribute $2,400 to your FSA ($200/month). You use those funds for doctor visits, prescriptions, and glasses — all tax-free, saving you ~$600 in taxes you'd otherwise owe.
You have $400 remaining in your FSA in late November. Your plan has a grace period through March 15. You stock up on FSA-eligible items (contact solution, first aid supplies, OTC medications) before the deadline.
You use $1,800 of FSA funds for dental work in January, before you've contributed that amount through payroll. The full election amount was available on January 1.
Frequently asked questions
What's the difference between an FSA and an HSA?
The key differences: FSAs are available with most health plans; HSAs require an HDHP. FSA funds are use-it-or-lose-it annually; HSA funds roll over forever. HSAs can be invested; FSAs cannot. HSAs can be contributed to directly; FSAs only through payroll.
What can I use FSA funds for?
Eligible expenses include doctor visits, prescriptions, dental care, vision care, medical equipment, menstrual products, many OTC medications, and more. A full list is available from IRS Publication 502.
Can I have both an FSA and an HSA?
Generally no — you can't have a standard Health FSA and an HSA simultaneously. The exception is a Limited Purpose FSA (dental and vision only), which is compatible with an HSA.
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