What You Need to Know About Your FSA (Flexible Spending Account)

Medical expenses have a way of appearing whether they are in the budget or not. A prescription, dental procedure, pair of glasses, or unexpected trip to urgent care can quickly strain your financial margin. If your employer offers a health Flexible Spending Account, commonly called an FSA, it can make these expenses easier to manage.

Here is what you need to know before enrolling.

An FSA Lets You Pay Eligible Expenses with Pretax Money

A health FSA is an employer-sponsored benefit that allows you to set aside part of your paycheck before certain taxes are calculated. You can then use that money for qualified medical expenses incurred by you, your spouse, and eligible dependents.

Because the money generally avoids federal income and payroll taxes, an FSA can reduce the true cost of your health-care expenses. For example, someone in the 22% federal tax bracket who also avoids 7.65% in Social Security and Medicare taxes could save approximately $296 in federal taxes by directing $1,000 into an FSA. Actual savings will depend on the person’s circumstances.

For plan years beginning in 2026, employees may contribute up to $3,400 to a health FSA. Your employer’s plan may establish a lower limit. The IRS publishes updated limits annually.

You Can Use It for More Than Doctor Visits

FSA funds can generally pay for deductibles, copayments, prescription medications, dental treatments, eye exams, glasses, contact lenses, and many other qualified expenses. Certain over-the-counter medications and menstrual care products may also qualify.

However, you generally cannot use a health FSA to pay health-insurance premiums. Before making a purchase, check your plan administrator’s eligible-expense list and retain any requested receipts or documentation

Be Careful About the “Use-It-or-Lose-It” Rule

The greatest disadvantage of an FSA is that unused money may be forfeited. Some employers provide limited relief by offering one of two options:

• A carryover allowing unused funds to move into the next plan year. For 2026, the maximum permitted carryover is $680, although a plan may allow less.
• A grace period of up to two and a half months after the plan year ends in which you can incur additional eligible expenses.

An employer may offer a carryover or a grace period, but not both—and it is not required to offer either. A separate “run-out period” may give you additional time to submit claims for expenses already incurred. Ask your benefits administrator which provisions apply to your plan.

Your Full Election May Be Available Immediately

Unlike many accounts, a health FSA may make your entire annual election available at the beginning of the plan year, even though the money will be deducted from your paycheck throughout the year. This can be particularly helpful when a large eligible expense occurs early.

However, your election usually cannot be changed during the year unless you experience a qualifying life event permitted by your plan. Estimate carefully during open enrollment.

Also, participating in a general-purpose health FSA can usually make you ineligible to contribute to a Health Savings Account. A limited-purpose FSA covering primarily dental and vision expenses may be compatible with an HSA. Review the rules before using both. IRS Publication 969 explains these distinctions.

Use Your FSA as a Stewardship Tool

An FSA is valuable only when used intentionally. Review last year’s medical expenses, consider expected procedures and prescriptions, understand your employer’s deadlines, and check your balance several times during the year.

Proverbs 27:23 says, “Know well the condition of your flock, and pay attention to your herds.” Good stewardship includes knowing what resources are available and managing them carefully. An FSA will not eliminate medical expenses, but thoughtful planning can help you pay them with greater wisdom and less financial strain.