A health flexible spending account (FSA) is part of your benefits package. This plan lets you use pre-tax dollars to pay for eligible health care expenses for you, your spouse, and your eligible dependents.
Here’s how an FSA works. Money is set aside from your paycheck before taxes are taken out. You can then use your pre-tax FSA dollars to pay for eligible health care expenses throughout the plan year. You save money on expenses you’re already paying for, like doctors’ office visits, prescription drugs, and much more.
Health FSAs benefit everyone – single individuals, families, and soon-to-be retirees. Setting aside pre-tax dollars means you pay fewer taxes and increase your take-home pay by your tax savings. You save money on eligible expenses that you are paying for out of your pocket. The amount you save depends on your tax bracket.
For example, if you are in the 30 percent tax bracket, you can save $30 on every $100 spent on eligible health care expenses such as dental checkups, prescription eyeglasses, and bandages. Discover how your savings can add up by visiting our FSA Savings Examples page.
And depending on how your health FSA plan is set up, you may be able to carry over up to $500 of unused funds to the following plan year.
Only eligible expenses can be reimbursed under the FSA. These expenses are defined by IRS rules and your employer’s plan. You can learn about your employer’s plan by reading the Summary Plan Description (SPD).
Eligible health FSA expenses are those that you pay for out of your pocket for medical care that’s provided to you, your spouse, and eligible dependents. Generally, IRS rules state that medical care includes items and services that are meant to diagnose, cure, mitigate, treat, or prevent illness or disease. Transportation that is primarily for medical care is also included. Here are some examples:
Check out our Eligible Expenses page for more details.
The list of eligible expenses is based on IRS rules. Here are some other IRS rules you should know about:
Yes, but they require a prescription. IRS rules state that over-the-counter (OTC) medicines and drugs are not eligible for reimbursement under your health FSA unless prescribed by a doctor (or another person who can issue a prescription) in the state where you purchase the OTC medicines. These rules do not apply to insulin (including OTC insulin).
Any claim you submit for reimbursement that has an OTC medicine expense must include a Request for Reimbursement Form and one of the following types of supporting documentation:
Allergy medication, aspirin and pain relievers, as well as first aid creams and ointments are examples of OTC medicines that require a prescription. Learn more on our Over-the-counter Expenses page.
Items such as bandages and thermometers are eligible for reimbursement through your health FSA, and if you have a benefit card, you can use it to purchase these items. A detailed list of examples is on our Over-the-counter Expenses page.
No. You can only use your FSA for items that you can reasonably use during the plan year. If you “stockpile” OTC items, you won’t be reimbursed.
Expenses that are not approved are called “ineligible expenses.” Ineligible health FSA expenses include:
Also, as described in a previous question, you can’t use your FSA for:
These are only a few of the examples of expenses that aren’t covered by a health FSA. Find a full list of eligible and ineligible expenses on our Eligible Expenses page.
These services aren’t provided the same way as other types of health care. Most of the time, orthodontic services are provided over a long period of time and may extend beyond the plan year, and services tend to be hard to match up with actual costs. As a result, the reimbursement process is different, and you have two ways to be reimbursed. Learn more on our Orthodontia page.
Yes. As a result of the Affordable Care Act, employee contributions have been capped for health FSA plans. The annual limit is $2,500, and you cannot contribute more than this amount. However, your plan may have an annual limit that is less. Please review the Summary Plan Description (SPD) to find out the annual limit for your plan.
The statutory $2,500 limit does not apply to certain non-elective employer contributions made to an employee’s health FSA. It also does not apply to contributions made to other types of FSAs (such as a dependent care FSA), health savings accounts (HSAs), or health reimbursement arrangements (HRAs).
Yes, if your spouse is eligible to make contributions to a health FSA. Each spouse may contribute up to the $2,500 maximum limit to their own health FSA. This applies even if both spouses participate in the same health FSA plan sponsored by the same employer.
Your entire health FSA election is available on the first day of the plan year. If your FSA is active, your available funds decrease as your claims are paid. You can find out your available funds by logging in to your online account.
Your employer chooses the reimbursement schedule. You can find out how often reimbursements are made by reading the Summary Plan Description.
Your FSA information is available any time day or night by logging in to your online account.
Just log in to your online account to find it.
You must save all itemized receipts and other supporting documentation for every FSA expense. Try to keep all of your documentation filed in an envelope or box. Appropriate documentation includes:
In some cases, a Medical Determination Form completed by a doctor is required. Credit card receipts, canceled checks, and balance forward statements do not meet the requirements for acceptable documentation.
It depends on the rules for your employer’s FSA plan. Your employer decides the features included in your FSA plan, and the way your health FSA plan is set up determines if you can use funds left in your account after the plan year ends. Review the Summary Plan Description (SPD) to learn if your plan includes either of these features:
The IRS doesn’t allow a health FSA plan to have both a carryover feature and a grace period extension. If your health FSA had a grace period in the past, it no longer applies to your current plan if the carryover feature is now available.
Even if your plan has a carryover feature or a grace period, it’s important to plan carefully when you decide how much to put into your FSA. For example, don’t think of a grace period as an extension of the plan year. It’s more like a cushion in case your expenses fall a little short of what you expected.
Please Note: Not all plans have one of the features listed above, and the length of a grace period can vary. So can the maximum amount of a carryover. That’s why it’s important to review your SPD.
It’s a set number of days after the plan year ends that allows you to submit claims for eligible expenses incurred during the plan year. Not all FSA plans include this feature and the time frame of the run-out period may vary by plan. Check your Summary Plan Description (SPD) for details.
Some people get a run-out period confused with a grace period extension, so here’s an example that shows the difference. Let’s say your plan year begins on January 1 and ends on December 31.
The IRS created this rule, which states that all money left in your FSA is forfeited after the plan year ends, or if applicable, after the run-out period. If your health FSA has a carryover feature, you may carry over up to $500 of unused funds into the next plan year. The $500 maximum carryover limit was set by the IRS, but your employer may decide to have a lesser amount – check your Summary Plan Description (SPD). After the carryover, you forfeit remaining unused funds that are more than the carryover amount.
The unused portion of your health FSA cannot be paid to you in cash or other benefits, and you can’t transfer money between FSAs. To reduce your risk of losing money at the end of the plan year, carefully estimate your expenses when choosing your annual election amount.
Your election can’t be changed during the plan year unless you have a change in status or other qualified event – that’s an event defined by IRS rules – and your employer's plan must allow the change as well. Learn more on our Health FSA Participant Guidelines page.
If you stop working for your employer or you lose your FSA eligibility, your plan participation and your pre-tax contributions will end automatically. Expenses for services you have after your termination date are not eligible for reimbursement.
Please Note: You may be entitled to elect COBRA continuation coverage under the health FSA and receive reimbursement for qualified expenses incurred after your termination, but only if you continue to make the required FSA COBRA premium payment using your money after taxes have been taken out. However, you generally do not have the right to elect COBRA continuation coverage if the cost of COBRA continuation coverage for the remainder of the plan year equals or is more than the amount left in your FSA (excluding your carryover dollars, if applicable). Please see your Summary Plan Description for specific rules that apply to your FSA plan.