FSA (Flexible Spending Account)

A Flexible Spending Account (FSA) is an employer-sponsored account that lets you set aside pre-tax money from your paycheck to pay for qualified medical expenses. The big constraints are that FSAs are only available through an employer and that most of the balance must be spent by year-end or you lose it.

How it works

You elect a dollar amount during your employer’s open enrollment. That amount is deducted from your paychecks across the year in equal installments, pre-tax. You can use the FSA to pay for copays, deductibles, prescriptions, vision care, dental work, and many over-the-counter items. Most employers issue a debit card linked to the account.

The pre-tax piece is the main benefit. Money in the FSA escapes federal income tax, FICA tax, and usually state income tax. For someone in the 22% federal bracket, a $3,000 FSA contribution saves around $900 in taxes.

2026 contribution limit

For 2026 the employee FSA contribution limit is $3,300 per year. Some employers add their own contribution on top, which does not count against your limit.

A separate Dependent Care FSA exists for childcare and elder care expenses, with its own $5,000-per-household limit. It is a different account from the medical FSA.

Use it or lose it

This is the defining FSA rule. Money left in the FSA at the end of the plan year is forfeited back to the employer. To soften the blow, employers can choose ONE of two flexibilities:

• Carryover: up to $640 of unused FSA money rolls into the next plan year (2026 limit).
• Grace period: an extra 2.5 months after year-end to spend the remaining balance.

Employers cannot offer both. Check your benefits handbook to see which option (if any) your employer chose. Many people scramble in December to spend down FSA balances on glasses, dental work, or eligible OTC items.

FSA vs HSA

These accounts get confused often, so the key contrasts:

• Eligibility: FSA requires an employer offering one. HSA requires you to be enrolled in an HDHP.
• Carryover: FSA uses it or loses it. HSA carries year to year forever.
• Portability: FSA stays with the employer if you leave. HSA goes with you.
• Contribution source: FSA is employee only (plus optional employer add-on). HSA accepts contributions from anyone.
• Self-employed: Cannot use FSA. Can use HSA if enrolled in an HDHP.

If you buy your own coverage on the Marketplace, FSA is not an option. You would use an HSA paired with an HDHP plan instead.

Example

A teacher in Florida elects $2,500 in her FSA for the year, planning for braces for her son ($1,800), glasses ($400), and copays ($300):

• Tax savings (22% bracket plus 7.65% FICA): about $743
• She spends $2,400 by December and gets $640 carried over (her employer offers carryover)
• $100 carries into next year’s FSA

Related terms

• HSA (Health Savings Account)
• HRA (Health Reimbursement Arrangement)
• Deductible
• Premium

If you do not have an FSA option through work, run the calculator and see if an HSA-eligible Marketplace plan fits you.