What Is a Flexible Spending Account?

In this article, we’ll focus specifically on healthcare FSAs and how they work. 

How does an FSA work?

FSAs (sometimes also referred to as “Flexible Spending Arrangements”) are typically offered with your workplace health insurance plan. Many employers provide FSAs as an employee benefit. 

Good to know: Unlike Health Savings Accounts (HSAs), FSAs are not available with a marketplace health insurance plan.

Funding your FSA

If your workplace offers an FSA, you have to decide how much money you want to contribute for the year. You can fund your FSA with pre-tax dollars taken from your paycheck. Typically, when you set up your account, you’ll let your employer know how much you want to contribute for the given plan year. Some employers may also make contributions to your FSA, but they’re not required to do so. Check with your workplace benefits or human resources department if you have questions.

Be aware that FSAs are subject to annual contribution limits, meaning you cannot contribute over a certain dollar amount. For example, for the 2025 plan year, you can contribute up to $3,300 through payroll deductions. If you’re married and your spouse has a plan through their employer, your spouse may also contribute up to $3,300 to that plan. In other words, a couple could jointly contribute up to $6,600 for the household. For more information, visit IRS.gov.

Using your FSA funds

The money you put away into your FSA can be used for eligible healthcare expenses. Generally, qualified expenses include things like deductibles, copays, prescriptions, as well as certain medical devices and supplies.

Good to know: You cannot use FSA funds to cover insurance premiums.

For more information on eligible expenses, you can check in with your FSA provider or the IRS (see Publication 502: Medical and Dental Expenses).

There are two general ways you could access your FSA money:

• Your FSA provider may give you a debit card associated with your FSA, which you can use to cover a qualified expense.
• You may also choose to submit documentation (e.g., receipts) to your FSA administrator for reimbursement.

Whichever method applies to you, consider getting into the habit of keeping your receipts in case your FSA provider ever asks you to confirm that the funds were used for eligible expenses.

Planning ahead

While FSAs can be a great tool to help you save and pay for out-of-pocket expenses, be aware that these accounts typically have a “use-it-or-lose-it” rule. That is, at the end of a plan year, any unused FSA money may be forfeited. So it’s a good idea to plan ahead on how much you want to contribute to your FSA each year and how you want to spend those dollars.

Generally, you have to use the money in an FSA within the given plan year. Depending on your employer, you may have the option to carry over a certain amount to use in the following year. Some employers may also offer a grace period of up to 2½ extra months to use the money in your FSA.

However, keep in mind that employers are not required to offer either of those options. It’s best to check in with your employer’s benefits department to see what options are available to you.