What Are Flexible Spending Accounts?

January 4, 2023

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What is a Flexible Spending Account?

Also called a Flexible Spending Arrangement, an FSA is a savings account that you can use to pay for certain out-of-pocket medical expenses.

There are a few types of FSAs, such as dependent care FSAs and limited purpose FSAs, which can be used for different purposes and have different rules.

In this article, we’ll focus on FSAs that can be used to pay for qualified medical expenses.

Why are FSAs attractive savings options?

The amount you contribute is tax-free, which means you’ll save money on certain medical expenses.

Who is eligible for an FSA?

Typically, to get an FSA, your employer has to offer an FSA through your health plan. FSAs are not available with a marketplace plan.

How can you use the money in your FSA?

You can use the money in your FSA to pay for qualified medical expenses like copayments, some over-the-counter medications, prescriptions, dental visits and eyeglasses.

Since March 2020 (when Congress passed the CARES Act in response to Covid-19):

FSA funds could be used to buy qualified over-the-counter medications without getting a prescription from your doctor.
Qualified medical expenses now include tampons and pads as well as some other feminine products. We have no idea why it took a pandemic to get this considered essential, but ladies, the time has come.

If you have any questions about FSA eligible expenses, contact your FSA servicer, health insurer and/or human resources department for more information.

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How do FSAs work?

First, you have to fund it. If you choose a healthcare plan with an FSA, you decide how much money you’ll want to contribute for the year. You don’t have to pay the money up front.

Instead, your employer will deposit money to your FSA throughout the year (i.e., every time you get paid). Note: Sometimes employers will kick in money, but if they do, it’s considered income and it’ll be taxed.

In 2022, you could contribute up to $2,850 to an FSA ($3,050 for 2023).

Here’s how you could use your FSA money to cover certain expenses:

Your insurer may give you an FSA debit card that you can use when you’ve got a qualified medical expense.
You submit documentation to your FSA administrator for reimbursement.

In both instances, it’s probably a good idea to hang on to receipts just in case your provider wants to confirm the money you’ve used was applied to FSA-eligble expenses.

FSAs follow the “use it or lose it” rule, so it’s a good idea to plan on how you want to spend the money in your account. There are a few exceptions, but generally you can’t carry your funds over into the next year and you can’t take the money with you to a new job.

When can you use the money in your FSA?

The amount you pledge to put into your FSA is ready to use even if the money hasn’t been pulled from your paycheck. So, for example, if you said you wanted to contribute the full amount into your FSA for the plan year, that money is yours to spend when your coverage goes into effect.

This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.