What is a flexible spending account (FSA)?

If you have a health plan through an employer, a flexible spending account (FSA) is a tool offered by many employers as part of their overall benefits package. FSAs were designed to help employees set aside money during the plan year to pay for out-of-pocket costs and catch a tax break in the process. Let’s go over the nuts and bolts of FSAs.

How do FSAs work?

An FSA is a tool that may help employees manage their health care budget. Here’s how a health and medical expense FSA works:

Employers set the maximum amount that you can contribute; however, it can’t exceed the IRS limit.¹
An FSA is not a savings account. If you leave your job, you can’t take your FSA with you.
If you don’t use the full amount you’ve elected to contribute by the end of the calendar year, you could lose, or forfeit, your FSA dollars.
As a way to protect employees from losing the money they’ve set aside, many companies have a policy allowing a carryover in unspent FSA money or grace period provision to still use prior year funds for new claims, up to 2 ½ months in to a new plan year. Any amount left in the account after that is generally no longer available to you.

There are also FSAs that help relieve the cost of dependent care. Many of the rules around these FSAs are similar to those of health care FSAs. For example, there are IRS limits and these accounts don’t follow you to a new job.

What are FSA contribution amounts for 2026?

Beginning January 1, 2026, health care FSA (HCFSA) contributions are limited by the IRS to $3,400 each year (this is a $100 increase from the 2025 limit of $3,300). The limit is per person — each spouse in the household may contribute up to the limit.
For the 2026 plan year, an individual can contribute up to $3,400 per year to a limited purpose FSA (LPFSA), which covers dental and vision expenses.
Your employer may elect a lower contribution limit. You can check your plan documents or ask your Human Resources office for the specifics of your FSA. The limit may be adjusted annually to account for inflation increases.¹

Health care FSA carryover limit for 2026

This is the amount you can carry over from a plan year beginning in 2025 to the following plan year.

If you have a plan ending December 31, 2025, up to $680 can be carried over to the 2026 plan year
Any amount that rolls over into the 2026 plan year does not affect the maximum limit that employees can contribute¹

Dependent care FSA limit for 2026

The dependent care FSA limit for 2026 depends on how you file. The amounts for 2026 are:

$7,500 per year, if married and filing a joint return or a single parent
$3,750 per year per parent if married and filing separately¹

What are FSA eligible expenses?

The IRS also sets rules around how you can spend FSA funds, and the rules depend on what type of FSA you use. There are three types of FSAs:

Health care FSA
Limited-purpose FSA
Dependent care FSA

Each type of FSA has a different set of rules around what you can use the money on. For example, you cannot use funds from a health care FSA to pay for daycare. For that, you need to use a dependent care FSA.

Health care FSA eligible expenses

With a health care FSA, you can use pre-tax dollars to pay for eligible medical, dental and vision care expenses that are not covered by your health care plan. The annual amount becomes available to you on the first day of the plan. So, you can use your health care FSA funds to pay for eligible expenses on day one. Health care

FSA eligible expenses include:

Copays and coinsurance for visiting your primary care provider, a specialist, a telehealth provider, urgent care center or mental health provider. The amount you pay still counts toward your deductible.
Medications, including prescriptions and over-the-counter drugs that have been prescribed to you.
Dental care, such as routine visits, cleanings, braces, dentures and dental procedures.
Vision care, including eye exams, prescription glasses, contact lenses and laser eye surgery.
Over-the-counter medical items like first aid supplies, blood pressure monitors, pregnancy tests and menstrual products.
Family planning needs, including vasectomy, contraceptives, fertility treatments and tubal ligation.

Some products and services are health care FSA eligible only if they are prescribed by a doctor for a specific need. For example, an FSA may not cover a multivitamin for general health. However, a doctor can write a prescription or Letter of Medical Necessity (LMN) to get an FSA to cover iron supplements for someone with anemia.

With a prescription of LMN, your health care FSA may cover:

Gym memberships
Fitness equipment and trackers
Supplements
Dermatology treatments
Weight-loss programs

Limited-purpose FSA eligible expenses

A limited-purpose FSA lets you set aside pre-tax earnings at the beginning of the plan year, to help pay for eligible dental and vision expenses only.

Because funds are only used for out-of-pocket dental and vision expenses, you can contribute to a limited-purpose FSAs while also contributing to a health savings account (HSA). By putting specific savings towards dental and vision expenses, you can reserve more money in your HSA for retirement or other expenses.

Dental care – This includes exams, cleanings, basic procedures, extensive procedures, dentures and braces. You can also use these funds to cover deductibles, copays and coinsurance for your dental insurance.
Vision care – Use the limited-purpose FSA to pay for exams, contact lenses, prescription glasses, laser eye surgery and related expenses. These funds can also cover the deductible, copays and coinsurance for your vision insurance.

Dependent care FSA eligible expenses

A Dependent Care FSA (DCFSA) is an account made up of pre-tax dollars and can be used to pay for eligible dependent care services when you (or your spouse) work or are looking for work.

To qualify, the expense must provide care for an eligible dependent. Typically, this is a child. An eligible dependent may also anyone else who is your legal dependent. This could be an adult with disabilities.

There many types of care that qualify for DCFSA spending, including:

Before school care
After school care
Daycare
Babysitters and nannies
Preschool
Summer camps and school break camps

You can also use these funds for In-home care for spouse or a relative who is physically or mentally incapable of self-care.²

What are the benefits of a health care FSA?

Besides having an account just for health care and medical expenses, putting money into an FSA can offer tax advantages. The amount you contribute to your FSA is pre-taxed, meaning you save whatever percentage you would have paid in federal taxes if the money had not been deducted from your paycheck. Your employer saves on taxes, too — by avoiding a payroll tax.

Compare FSAs to other health accounts

FSAs are different from Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA). Comparing the different types of accounts may help you understand better how to use these accounts to your benefit.

Learn the difference between FSAs, HSAs and HRAs

How do I enroll in a health care FSA?

If your employer offers an FSA, at the beginning of a plan year, you decide how much money you want to allocate to your FSA. Think carefully about this estimate — you can’t change the amount unless your employment changes. Once you decide on an amount and set up your FSA, the amount is automatically deducted from your paycheck, then deposited into the FSA. You’ll either receive a debit card tied to the account or need to submit receipts to the FSA administrator to receive reimbursement.

It’s worth reading your employer’s plan if/when they offer an FSA — not all employers do — particularly if you’d be spending the money on out-of-pocket medical expenses regardless.