What Is an FSA?

An FSA makes it possible to save pre-tax income to put toward out-of-pocket healthcare expenses.

Jacqueline DeMarco
Jacqueline DeMarco
  • 13+ years writing insurance and personal finance content

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Jacqueline has contributed content, and her personal finance passion, to dozens of noteworthy financial brands, including Credit Karma, Bankrate, and MagnifyMoney.

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Ashley Cox
Edited byAshley Cox
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Ashley CoxManaging Editor
  • 7+ years in content creation and management

  • 5+ years in insurance and personal finance content

Ashley is a seasoned personal finance editor who’s produced a variety of digital content, including insurance, credit cards, mortgages, and consumer lending products.

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Updated January 13, 2023 at 11:00 AM PST

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If you want to plan ahead for your healthcare spending, a flexible spending account (FSA) can really come in handy. An FSA is a type of account where you can save money for select out-of-pocket healthcare expenses. You may also hear an FSA referred to as a “flexible spending arrangement.” One of the main benefits of FSAs is that you don’t have to pay taxes on any of the money you save in them.

Here’s some more insight into how FSAs work, their benefits, and some other types of health savings accounts to consider.

What is an FSA?

An FSA is a type of savings account where you can deposit money to cover future healthcare costs while reducing your tax burden. You won’t pay taxes on any money you contribute to an FSA.

Many employers offer FSAs as a benefit to their employees, and they can walk you through the enrollment process. Your employer can opt to contribute to your FSA, but it isn’t required to. You can choose how much to contribute to your FSA, but the IRS caps the annual contribution amount.

An FSA can be beneficial if you anticipate having a lot of doctor’s visits in a given year, or if you have a scheduled surgery coming up and know you’ll need extra money saved to cover the costs.

How does an FSA work?

If you opt for an FSA account through your employer, you can contribute pre-tax income to the account and you won’t have to pay tax on those contributions. Unfortunately, if you buy a health plan through the insurance marketplace, you won’t be eligible for an FSA.[1]

Here’s how to use the funds you save in an FSA:

  1. Submit a claim. Once you incur a qualifying out-of-pocket medical expense, you’ll submit a claim to the FSA manager, which may be your employer or an outside company contracted by your employer.

  2. Provide proof of medical expenses. When you submit your claim, you’ll need to provide proof of your medical expenses and submit a statement that your healthcare plan didn’t cover those expenses.[2]

  3. Get reimbursed for approved expenses. If your claim is approved, you’ll receive reimbursement for the approved expenses. Each employer is different, so contact your employer to understand exactly how your specific FSA works.

Dr. Ben Aiken, vice president of health at insurance administrator Decent, explains that to utilize an FSA, you need to choose how much you want to contribute annually. 

“At the beginning of your plan year, you will specify how much pre-tax dollars you’d like to set aside in your FSA,” Aiken says. “The total amount you selected is available on the first day of your benefits, even though you’ll be paying for it throughout the year in small increments taken from your pre-tax wages.”

Aiken says that the plan manager will issue you a debit card for your FSA account. You can use the card to pay for a wide range of healthcare expenses — from a copay for a doctor’s appointment to a baby thermometer.

See More: The 10 Best & Worst Medicare Advantage Plans

What can you use your FSA for?

You can use an FSA to pay for many different out-of-pocket healthcare expenses (both medical and dental) for yourself, your spouse, or one of your dependents, such as:

  • Health insurance deductibles

  • Copayments

  • Prescription medications

  • Insulin

  • Medical equipment and supplies

  • Over-the-counter medicines and menstrual care products

  • Medical devices

For example, if you break your leg, you can use FSA contributions to help cover the cost of your copayments for visits to the doctor and for equipment such as crutches.

You can’t use FSA funds for:[2]

  • Insurance premiums

  • Long-term care expenses

  • Amounts that another health plan covers

How much should you contribute to your FSA?

How much you should contribute to your FSA depends on your budget and your estimated healthcare spending.

“The IRS just increased the amount an individual can put into an FSA in a given year to $3,050 for 2023, but even though you can contribute up to $3,050, you may not want to,” Aiken explains. “The ‘use it or lose it’ description is associated with FSA because the amount set aside must be used in the health plan year and cannot be carried over.”

Because you don’t want to lose those dollars by putting too much in the FSA, Aiken suggests trying to estimate your out-of-pocket healthcare expenses for the year before you enroll.

Expert Tip:

While you can’t predict exactly how much you’ll spend on healthcare in a given year, you can look at your healthcare spending in recent years to get an idea of how much you need to contribute. For example, if you typically spend $1,000 on eligible out-of-pocket expenses, you may only want to contribute that amount to your FSA.

One of the downsides of FSAs is that you have to use the money in your account within the plan year or you lose it, so it’s really important you don’t contribute more than you’re likely to spend.

Learn More: What’s the Difference Between Deductible and Out-of-Pocket in Health Insurance?

Understanding FSA limits

For 2023, the IRS caps FSA contribution limits at $3,050 per employee per year — an additional $200 more than the 2022 contribution limit of $2,850.[3] Married couples who both have access to an FSA through their employer can each contribute that amount to their individual plans.

If you fail to use all the funds in your FSA, your employer can present you with a couple options moving forward:[1]

  • A 2.5-month grace period to use the money held in the FSA

  • Carry over up to $610 that you can use in the next plan year

Other FSA types

Here are two other types of FSAs that you may want to consider:

Dependent care FSA

A dependent care FSA (DCFSA) applies to care expenses, not healthcare. You can use the funds you contribute to a DCFSA to pay for either childcare or adult dependent care if you need this care for you or your spouse to work, look for work, or attend school as a full-time student. But if you’re job searching and fail to find a job and didn’t earn any income for the year, then your dependent care costs won’t be eligible.[4]

Limited purpose FSA

Similar to an FSA, a limited purpose flexible spending account (LPFSA) also allows pre-tax contributions and can be utilized to cover the costs of eligible dental, vision care, and post-deductible medical expenses if you’re enrolled in a high-deductible health plan (HDHP).

What are the differences between an FSA, an HSA, and an HRA?

FSAs aren’t the only type of savings account available. Here’s a closer look at the differences between FSAs, health savings accounts (HSAs), and health reimbursement arrangements (HRAs).


An FSA makes it possible to use pre-tax earnings to cover select out-of-pocket medical expenses if you have an employer-sponsored healthcare plan. A common way to use FSA funds is to cover the costs of prescription medications.


An HSA, or health savings account, also uses pre-tax money to pay for qualified medical expenses, but you can only contribute to an HSA if you’re enrolled in a high-deductible health plan. For example, if you have an upcoming surgery planned and you know you’ll need to pay out of pocket, you may want to contribute funds to an HSA to help cover those costs.


HRAs also come from employer-funded group health plans. The difference here is that instead of contributing pre-tax dollars, employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year. The great thing about an HRA is that unused contributions can be rolled over to future plan years, which makes it easy to cover a wide variety of medical expenses.

Keep Reading: The Difference Between Medicare and Medicaid Explained

Flexible spending account FAQs

Here are answers to some commonly asked questions about flexible spending accounts.

  • What happens to your FSA if you leave your job?

    Your FSA eligibility ends the day you stop working for your employer, and you’ll lose access to your FSA funds.

  • Can you have an FSA and an HSA at the same time?

    No, you can’t have both an FSA and an HSA at the same time. But if you have an HSA, you can have an IRA at the same time, and you can make funding distributions from a traditional IRA or Roth IRA to your HSA.

  • Can you have an FSA without health insurance?

    It’s not possible to have an FSA without having access to an employer-sponsored healthcare plan.


  1. HealthCare.gov. "Using a Flexible Spending Account (FSA)." Accessed January 12, 2023
  2. Internal Revenue Service. "Health Savings Accounts and Other Tax-Favored Health Plans." Accessed January 12, 2023
  3. Society for Human Resource Management. "2023 Health FSA Contribution Cap Rises to $3,050." Accessed January 12, 2023
  4. U.S. Office of Personnel Management. "Flexible Spending Account." Accessed January 12, 2023
Jacqueline DeMarco
Jacqueline DeMarco

During college, Jacqueline DeMarco interned at a retirement plan advisory firm and was tasked with creating a presentation on the importance of financial wellness. During her research into how money can affect our health, relationships and career, Jacqueline realized just how important financial education is. Jacqueline is a contributor for Insurify and has worked with more than a dozen financial brands, including LendingTree, Capital One, Credit Karma, Fundera, Chime, Bankrate, Student Loan Hero, ValuePenguin, SoFi, and Northwestern Mutual, providing thoughtful content to give readers insight into complex topics that they likely didn’t learn in school.

Ashley Cox
Edited byAshley CoxManaging Editor
Headshot of Managing Editor Ashley Cox
Ashley CoxManaging Editor
  • 7+ years in content creation and management

  • 5+ years in insurance and personal finance content

Ashley is a seasoned personal finance editor who’s produced a variety of digital content, including insurance, credit cards, mortgages, and consumer lending products.

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