An FSA is a workplace account that you get from your employer. It lets you save pretax income to use for medical expenses. It’s more like a spending account than a savings account though: Typically, you must use the money you contribute within a year or you lose it.
How Does It Work?
During open enrollment, you decide how much money you want to put into your FSA. Your employer takes that amount out of your paycheck before taxes are deducted from your earnings. You can use the money in your FSA to pay for qualified medical expenses throughout the year. Employers can also contribute to FSAs, but they aren’t required to do so. You can use the full yearly amount from the beginning, regardless of how much you’ve paid in so far.
The big advantage of an FSA is that you don’t pay federal, Social Security, Medicare, and, in most states, state income taxes on the money you contribute and spend on medical purposes. FSAs can also be used alongside any type of employer health plan, with the exception of an HSA. If you have an HSA, you can only have a limited purpose FSA that covers expenses not covered by your health plan, such as dental and vision expenses.
A disadvantage is that, unlike with an HSA, you can’t invest or earn interest on FSA funds. Moreover, if you don’t use all the money you deposit or you leave your job before spending it, you will likely lose it.
What Can FSA Funds Be Used For?
FSA funds can be used for qualified medical expenses, including the following:
You can’t use money from an FSA to pay insurance premiums, which are the payments you make each month to keep your insurance policy active. You generally can’t use FSA money for expenses like cosmetic procedures, supplements, and gym memberships.
What’s the Max You Can Contribute to an FSA?
The amount of money that you can put into an FSA is capped. In 2026, the limit is $3,400, but your employer can set a lower limit. If your spouse is offered an FSA, they can also contribute up to $3,400. If your spouse’s employer offers an FSA, they can contribute up to $3,400 to their account too.
Even if you don’t put any money into your FSA, your employer can still contribute up to $500. However, pretax contributions from an employer that are more than $500 are restricted to a dollar-for-dollar match. That means, for example, that you would have to contribute $1,000 for your employer to be allowed to chip in that same amount.
What Happens to Unused Funds?
Typically, FSAs have a use-it-or-lose-it policy, so any money that’s left over at the end of the plan year is gone. That’s why it’s important that you only contribute the amount that you think you will spend.
However, there are exceptions. Some employers offer grace periods of up to two and a half months to use the money in the account. Others let employees carry over a portion of the unused money. An employer can offer one or the other, but not both. The Internal Revenue Service (IRS) determines the maximum amount that can be carried over each year. Up to $680 can be carried over from 2026 to 2027.
Who Is an FSA Best For?
An FSA might be a good option if you meet any of these conditions:
Have an employer that offers this benefit
Want to save pretax income
Can somewhat predict what your health costs will be
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