What Is a Flexible Spending Account?

What Is an FSA?

An FSA is an employee benefit that can help ease the burden of medical costs and caregiving expenses. It allows you to make pretax contributions directly from your paycheck, which will reduce your taxable income. Your employer might also choose to kick in additional funds. But FSAs have annual contribution limits—and unused funds typically don't carry over to the next plan year.

How Does a Flexible Spending Account Work?

The only way to enroll in an FSA is to work for an employer that offers one. If it's available to you, this employee benefit could provide a tax-friendly way to save for certain health care and dependent care expenses.

After enrolling, you'll choose how much you want to contribute to the account each month or pay period—and that amount will be automatically deducted as a pretax salary reduction. That means you won't be taxed on withdrawals that are used to pay for qualified expenses. The type of FSA you have will determine which expenses are eligible.

Once you've set your FSA contribution amount, you generally can't change it unless you experience a qualifying life event like having a child or getting married or divorced. Otherwise, you'll have to wait for the following open enrollment period to make a change.

How to Use FSA Funds

FSAs funds are usually available through:

• A debit card: Many plans provide a debit card for easy spending. Just be sure to hang onto your receipts in case your plan administrator asks you to substantiate a charge.
• Reimbursement: You may have the option to cover FSA costs upfront, then submit a claim to get reimbursed afterwards.

Types of FSAs

There are three main kinds of FSAs. Each one is designed to cover different types of out-of-pocket costs.

Health Care FSA

You can use a health care FSA to pay for a variety of qualified medical expenses that aren't covered by your health plan. That applies to you, your spouse and your dependents. Qualified expenses can include:

• Insurance deductibles
• Copays
• Coinsurance
• Medical devices
• Certain prescriptions

Limited Purpose FSA

These health care FSAs are designed specifically for expenses related to vision and dental care, which are often excluded from regular health insurance plans. That money could go toward:

• Eye exams
• Glasses and contact lenses
• Dental services
• Vision or dental surgeries
• Orthodontic work

It's important to note that in order to contribute to a limited purpose FSA, you generally must be enrolled in a high-deductible health plan and have a health savings account (HSA).

Dependent Care FSA

You can use funds in a dependent care FSA to cover childcare or adult daycare bills. That's no small thing considering that the average parent spends at least 20% of their annual income on childcare, according to a 2026 Care.com survey. Qualified expenses can include:

• Daycare for a child (or elderly or disabled dependent)
• Preschool
• Summer camps
• After-school care

Tip: Parents can catch another break by seeing if they're eligible for the child and dependent care tax credit.

Who Is Eligible for an FSA?

FSAs are only available from employers. If one is offered to you, it should be outlined in your employee benefits package. Your human resources department or benefits coordinator should be able to provide more information if you're unsure.

Employees can usually enroll in their company's FSA during the following times:

• They're onboarding as a new hire
• The annual open enrollment period comes around
• They've experienced a qualifying life event like a change in marital status or the birth of a child

FSA Contribution Limits

FSAs have annual contribution limits that vary depending on the type of FSA you have.

If your employer allows you to transfer unused funds from one plan year to the next, the maximum allowable amount is $680.

FSA vs. HSA

Like an FSA, an HSA might be available as an employee benefit. But if it isn't, you can open an HSA on your own through a bank, credit union or independent HSA provider—assuming you're enrolled in a high-deductible health plan (HDHP). In 2026, that's a health plan that has a deductible of at least $1,700 for individual coverage ($3,400 for family coverage).

An HSA is also funded with pretax dollars and can be used to cover qualified medical expenses, but it works a bit differently than an FSA. In most cases, you can invest HSA funds and enjoy tax-free growth. You won't pay taxes on HSA withdrawals that are used for eligible expenses, but you can expect a 20% penalty (plus taxes) if you use these funds for anything else. However, once you turn 65, you can use an HSA for whatever you like, including retirement income. Just be aware that nonqualified withdrawals are taxable.

Learn more: What's the Difference Between an HSA and an FSA?

Pros and Cons of Flexible Spending Accounts

FSAs have important benefits and drawbacks to consider. You may want to read up on these pros and cons before opting into one.

Is a Flexible Spending Account Worth It?

If an FSA is on the table, it could offer a tax-efficient way to set money aside for qualified health care costs. And if your employer will contribute funds of their own, all the better. A dependent care FSA can be especially appealing to parents and caregivers.

But if you're enrolled in a high-deductible health plan, an HSA offers additional benefits that are worth considering. HSAs are portable investment accounts that can also help grow your nest egg. They allow for tax-deductible contributions and tax-free growth, as well as tax-free withdrawals if the money is used to cover eligible health care costs.

Frequently Asked Questions

The Bottom Line

FSAs are easy to use and might make health care feel a little more affordable. Your contributions will also reduce your taxable income. But not every employer offers an FSA—and if you have any leftover funds in your account at the end of the plan year, there's a good chance your full balance won't carry over. Being intentional about your contributions can help you get the most out of an FSA. In some cases, however, an HSA might be a better fit.