What Is a Flexible Spending Account (FSA)?

A flexible spending account (FSA) is an employer-sponsored savings account that lets employees set aside pretax funds for qualified medical expenses. It can help the account holder save money at tax time, especially because the list of allowable expenses that can be paid for with FSA funds has grown in📖 recent years.

The account, which is also sometimes called a "flexible spending arrangement," lets you contribute a portion of your regular earnings before tax; employers also can contribute to employees’ FSAs. Distributions from the account must be used to reimburse the employee for qualified expenses related to medical and dental services.

Another type of FSA is a 澳洲幸运5官方开奖结果ও体彩网:dependent-care flexible spe♊nding account, which is used to pay for child-care expenses for children age 12 and under and also can be used to pay for the care of qualifying adults, including a spouse, who can't care for themselves and meet specific Internal Revenue Service (IRS) guidelines. A dependent-care FSA has ꩵ澳洲幸运⛦5官方开奖结果体彩网:different maximum contribution rules than a medical-related FSA.

How a Flexible Spending Account (FSA) Works

One of the key benefits of a flexible spending account is that the funds contributed to the account are deducted from your earnings before taxes, lowering your 澳洲幸运5官方开奖结果体彩网:taxable income. As a result, re🐈gular contributions to an FSA can reduce your annual tax 🍃liability.

The IRS limits how much can be contributed to an FSA each year. For medical expense FSA accounts, the annual contribution limit is $3,200 for 2024.

If you are married, your spouse also can put aside up to the annual contribution limit through their employer. Employers can choose to contribute to an FSA, but they don't have to—if they do, their contribution doesn't reduce the amount that you are permitted to contribute. You a🌼ren't taxed on employer contributions.

Pros and Cons of Fle♒xible Spending Accounts (FSAs)

Besides their tax benefits, FSAs offer several advantages for account holders, but they don't cover all manner of medical or dental expenses. Here are some of their pros and cons:

Pros

• Reimburse medical care payments: The 澳洲幸运5官方开奖结果体彩网:pretax funds contributed to an FSA can be used for this purpose, which is defined to include amounts paid for the diagnoses, cure, mitigation, treatment, or prevention of disease or ailments affecting any structure of the body.
• Pay spouses' and dependents' qualified medical expenses: FSA owners can use the account to cover these, along with their own medical costs.
  
• Cover many medical equipment purchases: Diagnostic devices, bandages, and crutches, are 澳洲幸运5官方开奖结果体彩网:covered by FSAs. Expenditures for prescription medications, including over-the-counter (OTC) drugs for which you had a prescription, as well as insulin, can be reimbursed with FSA funds.
• Reimburse amounts paid for insurance plan deductibles: FSAs are allowed to be used for this purpose, as well as to pay back the account holder for copayments and 澳洲幸运5官方开奖结果体彩网:coinsurance for medical services.

Cons

• Some procedures or health-related expenses aren't covered: Expenses for surgery for cosmetic purposes and for items or services that are just beneficial for general health, such as gym memberships, aren't reimbursable.
• Funds have a "use it or lose it" provision: Generally, you must use the money in an FSA within the plan year. But your employer may offer one of two options: a "澳洲幸运5官方开奖结果体彩网:grace period" of up to 2 1/2 more months to use the money in your FSA, or let you 澳洲幸运5官方开奖结果体彩网:carry over up to $610 from 2023 into 2024, and $640 from 2024 into 2025.
• Can't be used to pay for insurance premiums: Although FSAs can cover the costs of insurance deductibles, they can't be used to pay for insurance coverage.

Special Considerations

When the year ends or the grace period expires, any funds that remain in your FSA are lost. Thus, you should carefully calibrate the amount of money you plan to put into your account and how you intend to spend it over the course of the year.

How Limited Purpose FSAs Work

A different type of FSA—a "limited purpose flexible spending arrangem🍒ent" (L🦄PFSA)—refers to a savings plan that can be used along with a 澳洲幸运5官方开奖结果体彩网:health savings account (HSA), which isn't allowed for a standard FSA. Contributions are made using 澳洲幸运5官方开奖结果体彩网:pretax earnings.

A limited-purpose FSA is more restrictive because the arrangement is reserved for paying dental and vision expenses. It is often used in conjunction with an 澳洲幸运5官方开奖结果体彩网:high-ded🧸uctible ꦅhealth plan (HDHP) in which a HSA is used for medical expenses associated with the HDHP.

The Bottom Line

A flexible spending account (FSA) lets you set aside a portion of your earnings before tax for medical and dental expenses. It's established by an employer for employees. Employers also can contribute to employees’ FSAs as part of their compensation. Distributions from the account must be used to reimburse the employee for qualified expenses related to medical and dental services. Another type of FSA is available for dependents' care.

There's a maximum contribution limit set by the IRS for individuals each year, and most of the money must be spent in the calendar year it's saved, so FSA account holders need to carefully plan their contribution amounts to avoid losing unused funds.