Flexible Spending Account (FSA)

A flexible spending account (FSA) is a type of tax-advantaged financial account that can be used to set aside a portion of your paycheck to pay for qualified expenses not usually covered by a health plan.

There are several different types of FSAs including dependent care, transit, and health care. Contributions can be made by an employee (you) or by your employer and are typically pre-tax through payroll deductions.

Funds can be used to pay for out-of-pocket and unreimbursed qualified expenses as defined by the Internal Revenue Service (IRS). Unlike other types of tax-advantaged health savings or reimbursement accounts, you don’t need to have a high deductible health plan (HDHP) to obtain an FSA - any medical insurance plan will do.

Most FSAs have a “use it or lose it” clause meaning the money must be spent during your coverage period. Any money left unspent by the end of the plan year is forfeited.

Learn more about FSAs and shop for items that are all eligible for reimbursement from this account.


FSAs follow a three-step process: Plan, Contribute, and Spend.


It’s very important to estimate how much you spend on eligible expenses for you and your family each year before you decide how much to contribute to your FSA. Both the IRS and your employer set limits on the maximum amount you can contribute, so make sure to take both those limits and your estimated annual expenses for the entire plan year into consideration. After you set your contribution amount, you won’t be able to change your FSA election amount again during your plan year except in certain IRS-defined “qualifying” situations.

FSAs are “use it or lose it” meaning the money you contribute to your FSA must be used within the plan’s eligibility period. Some employers allow FSA participants to spend a portion of last year’s FSA contribution this year but FSAs can also be set up to require participants to “use it or lose it” at the end of each plan year. Make sure you know how your employer’s FSA works. After carryover, any money left over in your account may be forfeited.


At the beginning of the year, money will be conveniently deposited into your FSA directly from your paycheck before taxes. You won’t need to make any additional deposits into your account.

You can’t take the funds from your FSA with you if you leave your company. Any money left unspent in your FSA stays with your employer if you leave your job; however if you leave employment before spending your FSA contributions, you may want to look into your COBRA options.


You can start using your benefit dollars immediately. The entire amount you elected to contribute to your FSA is available on day one of your plan year. You can spend your FSA dollars on any eligible expenses that are defined by the IRS or sometimes your employer, based on your account type. There are generally two main payment options for FSAs – request reimbursement or use the convenient debit card. For both methods, you will need to submit your receipts to show that the expenses were eligible. Reimbursements can be requested either through a convenient web portal or through paper forms.

Use it or Lose it / Carryover

Your contribution amounts must be used by the end of the year and do not usually carry over. In certain instances, your employer may allow up to a certain amount of funds to carry over into the next plan year. These carryover funds may reduce the amount you can contribute the next plan year.


Eligible expenses vary depending on the type of FSA. The IRS, and in some cases your employer, determine which expenses are eligible.

  1. Prescription, non-prescription, and over-the-counter medications
  2. Deductibles
  3. Medical Co-payments
  4. Dental
  5. Vision
  6. Medical equipment (eyeglasses, walking canes, hearing aids, etc.)


You can only enroll if your employer offers an FSA. You enroll in or renew your enrollment in your FSA during your employer’s Open Enrollment period.

Adding Money

After you’ve set your contribution amount at the beginning of the plan year, you will be unable to change it unless for a qualifying life event. FSAs funds are withdrawn automatically from each paycheck before taxes can be deducted.  Your paycheck deductions will match the contribution amount.


You can start using your benefit dollars immediately. The entire amount you elected to contribute to your FSA is available on day one of your plan year. You can spend your FSA dollars on any eligible expenses that are defined by the IRS and your employer.

How Do I Get Money Out?

Much like a checking or savings account, FSAs come with a web portal where you can access information about your account 24/7. On these portals you can submit claims for reimbursements, check your balance, and see your total contributions for the year. If a debit card is offered with your account, you can request a new one if yours is lost or stolen.

  1. Reimbursement: You can easily request reimbursement through the web portal associated with your account or you can submit a claim form. You will need to attach copies of your receipts to prove that it was for an eligible expense. You can mail or fax the documents to your HSA provider or scan and upload the documents to their website.
  2. Debit Card: Use your associated debit card for eligible expenses just as you would a debit card associated with your bank account.
  3. Provider Payments: You can arrange to have your provider paid directly from your FSA. When you receive a bill for an eligible expense, request that the payment be made directly from your account.

What information should I have on my receipts?

To help ensure your claims are processed, your receipts or supporting documentation should have the following:

  1. The name of the person receiving services
  2. The service date
  3. The provider’s name and address
  4. If necessary, the provider tax identification number (for dependent care)
  5. A description of the service performed
  6. The total cost and the amount paid

Limited Purpose and Dependent Care Accounts are also FSAs. Learn more about these two accounts below.

Limited Purpose Flexible Spending Accounts (LPFSA)

While health care FSAs are the most popular, other kinds of FSAs may be offered through your employer. Limited Purpose FSAs (LPFSAs) are frequently offered with Health Savings Accounts (HSAs) and usually only cover out-of-pocket dental and vision expenses. Such expense could include:

  1. Dental and orthodontia care such as fillings, X-rays, and braces
  2. Vision care, including eyeglasses, lenses, and prescription contacts
Dependent Care Reimbursement Accounts (DCRA)

Just like health care FSAs, Dependent Care Reimbursement Accounts (DCRA) also use pre-tax dollars taken from your paycheck. However, DCRAs let you pay for eligible expenses related to care of your children, disabled adults, elderly parents, or other dependents.

How They Work

Unlike health care FSAs, with DCRA you cannot access the entire yearly contribution amount on day one. Instead, you can only be reimbursed for expenses that fall within your current account balance.

Qualified dependents may include:

  1. Children under age 13
  2. Dependents of any age who are mentally or physically incapable of caring for themselves (you must claim them as a dependent on your federal income tax return)

Due to the nature of DCRAs, you are not eligible if you have a stay-at-home spouse and the care enables you (or you and your spouse) to work, look for work, or go to school full time.

Some eligible expenses include:

  1. Fees for licensed day care or adult care facilities
  2. Placement fees for a dependent care provider
  3. Before and after school programs for dependents under age 13