What Is a Flexible Spending Account (FSA)?
In plain English
A Flexible Spending Account (FSA) is an employer-sponsored benefit that allows employees to set aside pre-tax salary dollars for qualified out-of-pocket healthcare expenses or dependent care costs. Contributions reduce your taxable income, saving you money on healthcare and caregiving costs. Unlike HSAs, FSA funds are subject to a use-it-or-lose-it rule each plan year.
What Can You Use FSA Funds For?
Healthcare FSA funds can be used for copays, deductibles, prescriptions, dental and vision care, and thousands of eligible over-the-counter products. Dependent care FSAs cover daycare, preschool, after-school programs, and elder care for dependents while you work. The IRS and your plan administrator define eligible expenses — a comprehensive list is maintained by the FSA Store or IRS Publication 502.
What Is the FSA Use-It-Or-Lose-It Rule?
Unlike HSAs, most FSA funds must be used by the end of the plan year or you forfeit the balance. Some employers offer a grace period of up to 2.5 months into the new year, and others allow a limited carryover amount (up to $640 in 2026, adjusted by the IRS annually). Not all employers offer these options, so check your plan's specific rules before making contributions.
How Is an FSA Different From an HSA?
Both offer pre-tax savings for healthcare, but key differences exist. HSAs require enrollment in an HDHP; FSAs do not. FSA funds are use-it-or-lose-it annually; HSA funds roll over indefinitely. HSAs are individually owned and portable; FSAs are employer-owned and generally not portable between jobs. HSAs can be invested for long-term growth; FSAs typically cannot.
Frequently asked questions
How much can you contribute to an FSA?
The IRS sets annual FSA contribution limits. For healthcare FSAs, the limit for 2026 is set by the IRS and adjusted for inflation. Dependent care FSAs have separate, lower limits. Unlike HSAs, only employees can contribute to FSAs — employers may also contribute but are not required to.
Can I have both an HSA and an FSA?
Generally not simultaneously. If you have an HSA, you can only have a limited-purpose FSA that covers dental and vision expenses only, not general medical costs. This restriction exists because having both could allow double-dipping on pre-deductible expenses. Check with your employer's benefits administrator for specifics.
Keep exploring
Related terms
Health Savings Account (HSA)
A Health Savings Account (HSA) is a tax-advantaged savings account paired with a high-deductible health plan that lets you save pre-tax dollars for qualified medical expenses. Unused funds roll over indefinitely.
Insurance Deductible
A deductible is the amount you pay out of pocket before your insurance starts covering costs. Choosing a higher deductible typically lowers your monthly premium.
Copay
A copay is a fixed dollar amount you pay for a specific healthcare service, like a doctor visit or prescription. Copays are due at the time of service, separate from your deductible.
Open Enrollment
Open enrollment is the annual period when you can sign up for, change, or cancel your insurance coverage. Missing this window typically means waiting until the next year unless you experience a qualifying life event.