What Is an FSA and How Does It Work?

An FSA, or Flexible Spending Account (also sometimes called a Medical FSA), is a financial account you can use to pay some out-of-pocket medical expenses without having to pay federal taxes on the money. FSA funds are part of your gross income that your employer puts aside for your use. This decreases your taxable income (and tax burden) and helps you budget for out-of-pocket medical, dental, and vision expenses.

What Is The Main Benefit Of Having An FSA?

An FSA allows you to pay for qualified medical expenses with pre-tax dollars. You will not need to pay taxes on funds you have your employer put in an FSA.

What If I Do Not Use The Funds In My FSA?

FSAs are “use it or lose it." If you do not spend it by the end of the year, you forfeit the funds. Employers may choose to provide a “grace period" of up to two and a half months or allow you to carry over up to $570 per year.¹

How Do I Set Up An FSA?

Your employer must offer you an FSA. You cannot open one on your own. In 2020, 46 percent of employees in the U.S. had access to FSAs.² Ask your company if they offer FSAs and how you can enroll.

What Can I Spend My FSA On?

You can use your FSA funds to pay for many out-of-pocket medical expenses and drugstore items not covered by insurance. To be considered an eligible expense, some over-the-counter medications may require a doctor's prescription, but many everyday health-related items do not. Some common FSA-eligible expenses are:

• Co-pays
• Coinsurance
• Deductibles
• Bandages
• Sunscreen
• Contact Lens Solution
• Feminine hygiene products
• Allergy Medicine
• Cough Drops
• Hearing aids
• Dental services
• Blood tests
• Pain Relievers

There are many more expenses that are FSA-eligible. For a full list, and to learn what requires a doctor's prescription and what does not, check the IRS website.

What Expenses Cannot Be Paid For With FSA Funds?

Many health and wellness costs are considered ineligible expenses for FSAs. Some common examples include:

• Insurance premiums
• Toiletries
• Diapers
• Cosmetic procedures (with some exceptions)
• Teeth whitening (with some exceptions)
• Toothbrushes
• Mouthwash
• Marriage or family counseling

What Is The Maximum Contribution To Put Into An FSA?

Every year the IRS determines how much gross income you can put in your FSA. The maximum amount for 2022 is $2,850.³ However, even if your employer offers FSAs, they are not obligated to provide the maximum amount.

Can I decide how much or how little to put into an FSA?

To determine how much you want your employer to put into your FSA, consider the amount you spent on FSA-eligible expenses last year and estimate your current year's expenses.

Does My Employer Divert Pre-Tax Income Into My FSA Each Pay Period, And If So, Does That Mean I Only Have Access To The Amount That Has Accrued So Far?

You do not have to wait for your contributions to build up in your FSA; you will have access to the entire agreed-upon lump sum at the beginning of the year.

How Do I Access FSA Funds To Pay For Expenses?

Some FSAs allow you to access funds by paying for eligible items using a special debit card, while others require you to pay up-front and then submit receipts for reimbursement. The advantage of using a debit card is convenience, but the downside is that it may be easier to inadvertently use it to pay for expenses that are not FSA-eligible. If that happens, you will be alerted and are responsible for reimbursing the account.

Will My Employer Contribute To My FSA?

Employers, employees, or a combination of the two can contribute to an FSA. The typical employer contribution is $500 or a match of an employee's contributions⁴, although employers are not obligated to contribute anything.

Is a Flexible Spending Account worth it?

With proper planning and organization, an FSA can be worth it by lowering the amount of taxes you pay. Consider what you spend on FSA-eligible medical expenses each year and ask your employer about the specifics of your company's plan.

Managing Healthcare Costs with CareCredit

If you are looking for an option to help manage your medical bills, consider healthcare financing with the CareCredit credit card. The CareCredit card can help you pay for the care you want and need and make payments easy to manage.* Apply today and use our Acceptance Locator to find a provider near you that accepts CareCredit. Continue your wellness journey by downloading the CareCredit Mobile App to manage your account, find a provider on the go, and easily access the Well U hub for more great articles, podcasts, and videos.

Our Expert Reviewer

Patty Caballero and her team of consultants together have more than 35 years of health insurance knowledge working for some of the biggest health insurance companies in the US. She has knowledge in building brands and strategic initiatives to help consumers better understand their health benefits.