What is an FSA? A flexible spending account (FSA) is an employer-sponsored account that lets you set aside pre-tax money from your paycheck to pay for eligible medical or dependent care costs. Because the money leaves your pay before income tax is calculated, every dollar you spend on a qualified expense costs you less. This guide explains how an FSA works, what it can pay for, the 2026 limits, and how it compares with a health savings account (HSA).
How Does a Flexible Spending Account Work?
You cannot open an FSA on your own. Your employer must offer one. If it does, the process is simple:
- During open enrollment, you choose how much to contribute for the year.
- Your employer divides that amount across your paychecks and deducts it before income tax (and usually before payroll taxes too).
- You pay for eligible expenses with an FSA debit card, or you pay out of pocket and send in a claim to be reimbursed.
With a health FSA, the full yearly amount you elected is generally available from the first day of the plan year, even though your paychecks fund it gradually. That is a real advantage if you expect a big bill early in the year.
A simple example
Imagine Alex chooses to put $2,000 into a health FSA for the year. If Alex is in the 22% federal tax bracket, that $2,000 is not taxed as income, which saves roughly $440 in federal income tax. The saving can be larger once payroll taxes and some state taxes are counted. The catch is that Alex only gets this benefit if the full $2,000 is actually spent on eligible expenses.
Types of FSAs
Health care FSA
Covers out-of-pocket medical, dental and vision costs such as deductibles, copays, prescriptions and glasses.
Dependent care FSA
Covers costs of caring for a child or other dependent so you can work, such as daycare or after-school care. It is separate from the health care FSA, and the money in one cannot be used for the other.
Limited-purpose FSA
Covers only dental and vision expenses. It exists so that people with an HSA can still use an FSA for those costs.
2026 FSA Contribution Limits
The IRS adjusts these limits for inflation. For 2026, the main figures are:
| Item | 2026 limit |
|---|---|
| Health FSA contribution (per employee) | $3,400 |
| Maximum health FSA carryover (if your plan allows it) | $680 |
| Dependent care FSA (per household) | $7,500 ($3,750 if married filing separately) |
Your employer’s plan can set a lower limit, so always check your plan documents before choosing an amount.
What Can You Pay for With an FSA?
A health FSA can generally be used for:
- Doctor visit copays and insurance deductibles
- Prescription medicines and many over-the-counter medicines
- Dental care and orthodontics
- Eye exams, glasses and contact lenses
- Medical supplies such as bandages, blood pressure monitors and first-aid items
It usually cannot be used for insurance premiums, cosmetic procedures or general wellness items such as gym memberships. Rules vary, so check your plan’s list of eligible expenses. For the official rules, see IRS Publication 969.
The Use-It-or-Lose-It Rule
The biggest drawback of an FSA is that unused money is generally forfeited at the end of the plan year. To soften this, employers may offer one of two options, but not both:
- Carryover: you can roll over up to $680 of unused health FSA money into the next year.
- Grace period: you get up to 2½ extra months to spend the old balance.
Some employers offer neither, so find out which rule your plan follows before you decide how much to contribute. Also note that many plans set a deadline for submitting claims after the plan year ends, so do not leave receipts until the last minute.
FSA vs HSA: What Is the Difference?
Both accounts let you pay for medical costs with pre-tax money, but they work very differently:
| Feature | FSA | HSA |
|---|---|---|
| Who sets it up | Your employer | You (needs an eligible health plan) |
| Health plan required | No | Yes, a high-deductible plan |
| 2026 limit | $3,400 (health FSA) | $4,400 self-only, $8,750 family |
| Unused money | Mostly lost, with limited carryover | Rolls over every year |
| Who owns it | Employer plan, usually ends if you leave | You, even if you change jobs |
You generally cannot contribute to an HSA while you are covered by a general-purpose health FSA. If you want both, a limited-purpose FSA is the usual solution. Read our full guide to how a health savings account works to compare them in detail.
Pros and Cons of an FSA
Pros
- Pre-tax savings on medical and care costs
- Full yearly amount available early in the year
- No high-deductible health plan needed
Cons
- Use-it-or-lose-it risk
- Tied to your employer, so it usually ends when you leave the job
- Lower limits than an HSA
How Much Should You Put in an FSA?
The safest approach is to count only the costs you are sure about. Add up regular prescriptions, planned dental work, new glasses or contact lenses, and expected copays, using last year’s spending as a guide. Then choose an amount slightly below that total. Remember that you usually cannot change your election mid-year unless you have a qualifying life event, such as marriage, the birth of a child or a change in job status.
Who Should Consider an FSA?
An FSA makes the most sense if you can predict your costs, for example regular prescriptions, planned dental work, new glasses or daycare bills. Start with a conservative amount based on last year’s spending. Also remember that an FSA works alongside your regular coverage, so it helps to understand how health insurance works and what your deductible is before you choose.
Frequently Asked Questions
What is an FSA in simple words?
It is a work benefit that lets you pay for medical or care costs with money taken from your paycheck before tax.
Can I open an FSA on my own?
No. FSAs are offered only through an employer.
What happens to my FSA if I leave my job?
Coverage usually ends with your job, so spend your balance before you leave if you can. Ask your plan administrator about the exact rules.
Can I have an FSA and an HSA at the same time?
Not with a general-purpose health FSA. A limited-purpose FSA for dental and vision is allowed alongside an HSA.
Disclaimer: This article is for general information only and is not tax, legal or financial advice. Limits and rules can change and differ by employer plan. Check your plan documents or speak with a qualified professional before making decisions.