A flexible spending account (FSA) is a tax-advantaged account offered through your employer that lets you set aside pre-tax money to pay for out-of-pocket healthcare costs like deductibles, copays, and coinsurance. The money you contribute isn’t subject to payroll taxes or federal income tax, which means you keep more of each paycheck while covering expenses your insurance doesn’t fully pay for. For 2026, you can contribute up to $3,400 per year.
How an FSA Works
When you enroll in an FSA during your employer’s open enrollment period, you choose how much to contribute for the year. That amount is divided evenly across your paychecks and deducted before taxes are calculated. So if you earn $50,000 and put $2,000 into an FSA, you’re only taxed on $48,000. The savings add up: you avoid federal income tax, state income tax (in most states), and Social Security and Medicare payroll taxes on every dollar you contribute.
One important feature separates FSAs from a regular savings approach. Your full annual election is available on day one of the plan year, even though you haven’t contributed it all yet. If you elect $2,400 for the year and need $1,500 worth of dental work in January, you can use the full $1,500 immediately, even though only a couple hundred dollars has come out of your paycheck so far. Your employer fronts the difference and recoups it through your remaining payroll deductions.
What You Can Spend FSA Money On
FSA funds cover a wide range of medical, dental, and vision expenses. Common eligible costs include:
- Doctor visit costs: copays, coinsurance, and deductibles
- Prescription medications and insulin
- Vision care: eye exams, glasses, contact lenses, saline solution, and laser eye surgery
- Dental care: cleanings, X-rays, fillings, crowns, and orthodontia
- Medical equipment: bandages, first aid supplies, crutches, and blood pressure monitors
Over-the-counter medications generally require a prescription to be reimbursed through an FSA, with the exception of insulin. The IRS maintains the official list of qualifying expenses, and your plan administrator will typically provide a searchable database or eligible items list when you enroll.
The “Use It or Lose It” Rule
The biggest catch with an FSA is that unused money doesn’t stay in your account forever. At the end of the plan year, any funds you haven’t spent are forfeited. This is the rule that makes choosing your contribution amount so important: contribute too little and you miss out on tax savings, but contribute too much and you lose the excess.
Most employers offer one of two safety nets, but not both. A grace period gives you an extra two and a half months after the plan year ends (typically through March 15) to incur new expenses using last year’s funds. Alternatively, some plans allow a carryover of up to $640 in unused funds into the next year. If your money is still unspent after the grace period or exceeds the carryover limit, it’s gone. There’s also a separate run-out period, usually lasting through late April, which is just a deadline for submitting claims for expenses you already incurred. It doesn’t extend the window for new spending.
Types of FSAs
The standard health care FSA is the most common type, but it’s not the only one. A limited purpose FSA covers only dental and vision expenses. It exists specifically for people who have a health savings account (HSA), since you generally can’t pair a regular health care FSA with an HSA. If you’re enrolled in a high-deductible health plan with an HSA, a limited purpose FSA lets you still get pre-tax savings on glasses, contacts, dental work, and similar costs without disqualifying your HSA contributions. The limited purpose FSA has the same $3,400 maximum for 2026.
A dependent care FSA is a separate account entirely. It covers childcare and elder care expenses rather than medical costs, and it operates under different rules, including its own contribution limits and a grace period structure instead of a carryover option.
How an FSA Differs From an HSA
FSAs and health savings accounts both offer tax advantages for healthcare spending, but they work quite differently in practice. The most consequential difference: your employer owns your FSA. If you leave your job, the account doesn’t follow you. An HSA, by contrast, belongs to you permanently, like a bank account. You take it with you when you change employers, and the balance carries over indefinitely with no annual deadline to spend it.
HSA funds also grow tax-free if invested, making them a long-term savings tool. FSA funds sit in a spending account with a ticking clock. On the other hand, FSAs don’t require a high-deductible health plan, so they’re available to employees with traditional insurance plans that wouldn’t qualify for an HSA. And that day-one access to your full annual election is unique to FSAs.
Changing Your Contribution Mid-Year
Once you set your FSA election during open enrollment, you’re generally locked in for the year. The IRS only allows mid-year changes if you experience a qualifying life event. These include:
- Marriage, divorce, or legal separation
- Birth or adoption of a child
- Death of a spouse or dependent
- A change in employment status (yours, your spouse’s, or a dependent’s) that affects health insurance eligibility
- A change in the number of your tax dependents
Your requested change has to be consistent with the event. You can’t use a new baby as a reason to decrease your election, for example. There’s also a timing restriction: after September 30 of the plan year, only decreases to your election will be accepted, since there aren’t enough remaining pay periods to collect increased contributions.
What Happens to Your FSA If You Leave Your Job
When you leave your employer, your FSA access typically ends on your termination date. You can submit claims for expenses you incurred before that date, but new expenses after your last day won’t be covered unless you elect COBRA continuation coverage for the FSA.
COBRA for an FSA works differently than COBRA for health insurance. Your employer is required to offer it only if your account is “underspent,” meaning you’ve contributed more than you’ve been reimbursed so far. If you elect it, you’ll pay the full cost of what would have been your remaining contributions, plus a 2% administrative fee. The coverage generally lasts only through the end of the plan year in which you left. If your employer’s plan includes a carryover provision, you’d also retain access to whatever carryover amount rolls into the next year.
For many people, COBRA for an FSA isn’t worth the cost, since you’re paying after-tax dollars for what was supposed to be a pre-tax benefit. But if you have significant medical expenses planned, running the numbers can sometimes make it worthwhile, particularly if you’ve contributed more than you’ve spent and would otherwise forfeit the balance.