A healthcare flexible spending account, also called a flexible spending arrangement or FSA, lets you save for medical expenses with pre-tax money. But you’ll need to understand the rules and qualifications to make it work for you.
An HCFSA is part of an employer benefits plan. If offered, you typically set it up during your company’s annual open enrollment for the coming plan year. Once you enroll, your employer deducts the amount you choose from your paycheck, and the money accrues in a dedicated account. You’ll submit a claim and be reimbursed as you pay out-of-pocket medical expenses. The reimbursement is tax-free as long as the cost is FSA-eligible.
To be eligible for an HCFSA, you have to work at an employer offering it. Self-employed individuals are ineligible. You’re also ineligible for a healthcare FSA if you have a health savings account (HSA).
You contribute to your FSA with pre-tax income, money that hasn’t been hit by the federal income tax or payroll taxes. This lowers your tax bill by reducing your taxable income. Your employer can also contribute to your FSA, accelerating your savings. The Internal Revenue Service (IRS) treats employer and employee contributions the same — neither counts toward your income.
You can contribute up to $3,300 to your FSA for 2025 — a $100 increase from 2024. If your spouse has an FSA, you can each set aside the maximum for your FSAs, totaling $6,600 for your household. The annual contribution limit only applies to paycheck deductions, so employer contributions do not impact your annual limit.
The IRS has rules on how and when to use your FSA funds, but it’s also worth checking the details in your employer plan.
You, your spouse, and dependents can generally use FSA funds for medical and dental expenses not covered by your health plan. An FSA-approved cost is for treating or preventing a physical or mental condition — not for general care like vitamins or spa treatments. Eligible expenses could include:
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Medical, dental, and vision expenses that are not covered by your health insurance plan such as doctor’s office co-pays, coinsurance, and deductibles.
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Prescription drugs and over-the-counter medicines.
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Additional care items that address a medical condition, like bandages, reading and prescription eyeglasses, heating pads and pregnancy tests.
Everyday items used regardless of a medical condition are usually not FSA-eligible. This includes items like floss, vitamins, and cosmetics. You also can’t use FSA money for health insurance premiums or long-term care.
There are two ways to use your FSA money. You can pay out of pocket for healthcare costs and get reimbursed from your FSA by filing a claim.
You may also receive a debit card connected to your FSA that you can use to pay medical expenses directly. This way, you don’t have to front the costs and wait to be reimbursed.
You forfeit any unused funds at the end of the calendar year unless your employer allows an FSA grace period or a carryover.
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Grace period: Your employer can let you use the previous year’s funds for qualified expenses accrued that year for up to 2 ½ months into the following year.
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Carryover: In 2025, you may be able to use up to $640 of your 2024 balance.
Because an FSA is an employee benefit, you’ll also forfeit your FSA balance if you leave the company.
You may have other ways to save depending on your employer’s benefits. Here are additional tax-advantaged accounts to consider.
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Dependent Care FSA: Save pre-tax dollars to cover eligible childcare and other dependent care expenses while you work. This can include daycare, before- and after-school programs, summer day camps, and elderly care.
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Health Savings Account (HSA): If you have a high-deductible health plan (HDHP), you’re eligible for an HSA. Contributions are tax-deductible and reserved for eligible medical expenses. Unlike an FSA, you don’t need an employer to participate, and you can let your savings sit as long as you want, investing them to grow tax-free to use in retirement.
Read more: HSAs — A retirement plan for your healthcare
Money in an FSA account does not roll over. You’ll lose any money left in your account at the end of the plan year unless your employer offers a grace period or carryover. With a grace period, you can access your FSA funds for up to 2 ½ months into the new year. If your employer offers a carryover, you can roll over up to $640 of your balance from 2024 into 2025.
You’re eligible for a healthcare FSA if your employer offers one. You generally can’t have a healthcare FSA and an HSA. If you’re a highly compensated employee, you’ll have additional rules.
What is the difference between an HSA and FSA?
Both HSAs and FSAs build pre-tax savings for eligible healthcare expenses. You usually can’t participate in both. FSAs are only offered through an employer, and you generally have to use the money before the end of the year. HSA funds are yours, regardless of where you work. You can use the money for current year medical costs or invest it to grow over time and take it out — tax free — to pay for medical care after age 65.
What is the difference between an HRA and FSA?
An HRA or health reimbursement account is similar to a healthcare HSA in that it’s money you can use for qualified medical expenses. But HRA funds are contributed by your employer, not you. They may carry over from year to year, but you’ll lose them if you leave your job.
