What Is an FSA? A Way to Save on Medical Costs
A Flexible Spending Account (FSA) is a special account you put money into to pay for certain out-of-pocket health care costs. You don’t pay taxes on this money, which is deducted from your paycheck.
At a glance
- Term
- FSA
- What it is
- Workplace health benefit
- Section
- Health benefits and money
- Also called
- Flexible Spending Arrangement
- In one line
- It’s a special savings account from your job where you can stash pre-tax cash for things like copays, prescriptions, and dental work.
What FSA means
A Flexible Spending Account, or FSA, is an employer-sponsored benefit that allows you to set aside money for health care expenses before taxes are taken out of your paycheck. Each year during your company’s open enrollment period, you decide how much you want to contribute to the account for the upcoming year. This amount is then deducted in small increments from your paychecks. Because the money is pre-tax, using an FSA lowers your taxable income, which means you could save an amount equal to the taxes you would have paid on that money.
The funds in your FSA can be used for a wide range of ‘qualified medical expenses’ that typically aren’t covered by your health insurance plan. This includes costs like deductibles, copayments, and coinsurance, as well as spending on dental and vision care, prescriptions, and many over-the-counter medicines and products like bandages or contact lens solution. Many employers provide a debit card linked to the account to make paying for these items simple. Otherwise, you may need to pay yourself and submit receipts for reimbursement.
The most important feature of an FSA is what’s known as the ‘use-it-or-lose-it’ rule. Unlike some other health accounts, the money in an FSA generally does not roll over from year to year. You must spend the funds within the plan year. Some employers offer a small grace period to spend the money or allow you to carry over a limited amount into the next year, but this is not guaranteed. Because of this rule, it’s helpful to carefully estimate your expected medical costs for the year before deciding how much to contribute.
An FSA can be a valuable tool for managing predictable health expenses, but it requires some planning. It’s offered by an employer and is not tied to a specific type of health insurance plan, unlike a Health Savings Account (HSA). If you know you’ll have regular medical, dental, or vision costs throughout the year, an FSA provides a straightforward way to budget for them while also getting a tax break. The key is to be realistic about your spending so you don’t forfeit any money at the end of the year.
What public guidance says
FSA money is generally use-it-or-lose-it, though an employer may offer either a short grace period or a limited carryover.
How to use an FSA
- Decide your contribution amount during your company’s open enrollment period. This is usually the only time you can sign up or change your election for the year.
- Estimate your predictable out-of-pocket medical, dental, and vision expenses for the upcoming year to choose an amount you’re confident you’ll spend.
- Check your plan’s list of qualified medical expenses. While the IRS sets general rules, your specific plan documents will have the details you need.
- Pay for eligible items using the FSA debit card if you have one, or pay out-of-pocket and submit receipts to your plan administrator for reimbursement.
- Keep track of your balance and spending throughout the year. Plan ahead to make sure you use all the funds before your plan’s deadline.
FSA vs. similar terms
| Compared with | How FSA differs | What the other term means |
|---|---|---|
| HSA | An FSA is a ‘use-it-or-lose-it’ account that is not tied to a specific type of health insurance plan. | An HSA (Health Savings Account) is paired with a high-deductible health plan, and the funds roll over year after year. |
Common misconceptions
- Myth: You can change how much you contribute at any time. You can only elect your contribution amount during your employer’s open enrollment period, unless you experience a qualifying life event, such as a change in marital status or number of dependents.
- Myth: The money is yours to keep forever if you don’t spend it. FSAs have a ‘use-it-or-lose-it’ rule. You must spend the funds by the end of the plan year, though some employers may offer a grace period or a limited carryover option.
- Myth: You can only use an FSA for doctor’s visit copays. FSA funds can be used for a wide range of qualified medical expenses, including dental care, vision expenses like glasses and contacts, prescription drugs, and many over-the-counter items.
Related terms
When to bring in a professional
For questions about your specific FSA plan, it’s best to consult your plan documents or contact your HR department or the plan administrator.
- If you are unsure whether a specific service or product is a qualified expense under your plan.
- When you are trying to estimate your health care costs to decide how much to contribute during open enrollment.
- If you have a qualifying life event and need to know if you can adjust your contribution amount.
- If you have difficulty accessing your funds or getting a claim reimbursed by the plan administrator.
How this entry was made: drafted with AI assistance from general, widely published definitions, checked in a separate verification pass for invented numbers and claims, and edited by the Millennials Wellness editors. General information only, not medical, financial or legal advice. Last checked October 2026. Our ground rules · Back to the glossary