Workplace Benefits
Saving money for the future is a good way to help protect your financial health and prepare for the unexpected. When it comes to planning for medical costs in particular, a flexible spending account (FSA) can come in handy.
An FSA is an employer-sponsored savings account you can use to help make eligible out-of-pocket healthcare and dependent-care expenses more manageable. FSAs are tax-advantaged accounts, which means you can make pre-tax contributions to the account and spend the money on qualified expenses.1
Learn more about FSAs and how they can help you save and pay for qualified expenses.
A flexible spending account — or flexible spending arrangement — deducts pre-tax money directly from employees’ paychecks to help them save for qualified healthcare expenses. FSA funds can be used to pay for things like deductibles, co-pays, and medical office visits. Employers can also contribute to an employee’s FSA, but they aren’t required to do so.2
Typically, there are three ways to access your FSA money. You can use a debit card that’s connected to your account, pay providers directly through your online portal, or submit receipts for reimbursement. Check with your employer or FSA provider to find out which option(s) they offer.
FSAs can be used to cover the costs of various medical, dental, and vision expenses — as long as they’re qualified.
Here are some examples of qualified FSA expenses, according to the Internal Revenue Service (IRS) and FSA Store:2,3
For a more complete list of eligible expenses, review IRS Publication 502 or the FSA Store eligibility list.
To be eligible for an FSA, you need to work at a company that offers FSAs as part of their employee benefits. Generally, employees don’t need to be enrolled in a health insurance plan to open an FSA.4
If you have a health savings account (HSA), you likely won’t be eligible for a general healthcare FSA, because they're used to pay for the same types of medical expenses. However, there are specialty FSAs — like a limited purpose FSA (LP-FSA) and dependent care FSA (DC-FSA) — that you can use in conjunction with an HSA.
A healthcare FSA is a general-purpose FSA. In addition to this type of FSA, some employers may offer FSAs that suit specific needs. Covered expenses, HSA compatibility, and plan details can differ depending on the type of FSA you have.
A healthcare FSA is a standard FSA that can be used to help cover medical, dental, and vision expenses.
For 2024, IRS contribution limits for a healthcare FSA are $3,200.5
Healthcare FSAs generally can’t be used in conjunction with an HSA.1
A limited purpose FSA is similar to a standard FSA, except it can only be used to help cover qualified dental, vision, and preventive care expenses.
For 2024, contribution limits for an LP-FSA are $3,200.
LP-FSAs can typically be used in conjunction with HSAs. You might be able to maximize your HSA savings when you use funds from your LP-FSA instead of your HSA. For example, it can promote more tax-free account growth and allow you to save the full annual maximum in your HSA.
A dependent care FSA is used to pay for qualified medical expenses for dependents. Dependents are typically defined as children who are under the age of 13 and adults who are physically or mentally unable to take care of themselves. Eligible expenses could include things like child care, after-school programs, and senior day care.
For 2024, the contribution limit for a DC-FSA is $5,000 per household or $2,500 for married couples filing separately.6DC-FSAs can be used in conjunction with an HSA.
A post-deductible FSA is a slightly less common type of FSA. Until you reach your minimum annual deductible, these accounts can only be used to cover dental and vision expenses. However, once the deductible is met, you can use the funds from a post-deductible FSA to help pay for any qualified medical costs. These accounts are also HSA-compatible.
Having an FSA comes with multiple advantages, such as saving on taxes. But FSAs can also have disadvantages, like “use-it-or-lose-it” restrictions and lower contribution limits.
Consider the following benefits and limitations of an FSA:
Both an FSA and an HSA can help you pay for medical care while saving on taxes, but there are some key differences between FSAs and HSAs:
If your employer offers an FSA, you may want to consider opening one for its potential health and financial benefits. But first, make sure it's the right choice for you and your situation. Think about your finances and priorities to decide if you’ll reasonably be able to contribute enough to an FSA to make it worthwhile. If you often pay out of pocket for medical expenses, an FSA might be able to save you money in the short and long term.
If you decide to open an FSA, you would normally do so during your company’s open enrollment period. At this time, you can enroll in or make changes to your FSA, as well as your other employer-sponsored benefits. Speak with your human resources (HR) department to learn more about FSAs and how to start one. (Outside of the open enrollment period, changes can only be made mid-year if you have a qualifying life event.)