What is a flexible spending account (FSA)?
If you have a health plan through an employer, a flexible spending account (FSA) is a tool offered by many employers as part of their overall benefits package. There are two different types of FSAs: One for health and medical expenses and one for dependent care/childcare expenses. Both FSAs were designed to help employees set aside money during the plan year to pay for out-of-pocket costs and catch a tax break in the process. Let’s go over the nuts and bolts of health care FSAs.
How do FSAs work?
An FSA is a tool that may help employees manage their health care budget. Here’s how a health and medical expense FSA works:
- Employers set the maximum amount that you can contribute; however, it can’t exceed the IRS limit ($2,750 in 2021).1
- An FSA is not a savings account. If you leave your job, you can’t take your FSA with you.
- If you don’t use the full amount you’ve elected to contribute by the end of the calendar year, you could lose, or forfeit, your FSA dollars.
- As a way to protect employees from losing the money they’ve set aside, many companies have a policy allowing a carryover of up to $500 in unspent FSA money or grace period provision to still use prior year funds for new claims, up to 2 ½ months in to a new plan year. Any amount left in the account after that is generally no longer available to you.

How can I use the money in my health care FSA? What can I buy?
You can use your FSA for qualified medical expenses and services, as defined by the Internal Revenue Service. What are qualified medical expenses? The list is extensive, but some of the more common expenses and services include:
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Deductibles
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Copayments
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Prescription medication
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Vision care, including prescription eyeglasses
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Thermometers
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First-aid kits
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Breast pumps and supplies
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Hearing aids
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Crutches
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Mental health counseling
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Addiction treatment
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Over-the-counter medication (no toiletries, though — those are considered cosmetic)
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Chiropractor care
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Diabetic supplies (blood sugar monitors, test strips, diagnostic testing supplies)
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Birth control
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Contact lenses
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Other health care related items/services
What are the benefits of a health care FSA?
Besides having an account just for health care and medical expenses, putting money into an FSA can offer tax advantages. The amount you contribute to your FSA is pre-taxed, meaning you save whatever percentage you would have paid in federal taxes if the money had not been deducted from your paycheck. Your employer saves on taxes, too — by avoiding a payroll tax.
How do I enroll in a health care FSA?
If your employer offers an FSA, at the beginning of a plan year, you decide how much money you want to allocate to your FSA. Think carefully about this estimate — you can’t change the amount unless your employment changes. Once you decide on an amount and set up your FSA, the amount is automatically deducted from your paycheck, then deposited into the FSA. You’ll either receive a debit card tied to the account or need to submit receipts to the FSA administrator to receive reimbursement.
It’s worth reading your employer’s plan if/when they offer an FSA — not all employers do — particularly if you’d be spending the money on out-of-pocket medical expenses regardless.
What's the difference between HSA, HRA, and FSA?

The difference between HSAs, HRAs, and FSAs
Compare the details about Health Savings Accounts (HSA), Health Reimbursement Accounts (HRA) and Flexible Spending Accounts (FSA) to learn which one may be right for you.
Health Savings Account (HSA)
You must have a high deductible health plan that meets a deductible amount set by the IRS to be eligible.
Health Reimbursement Account (HRA)
If your employer offers this type of health plan, you will get an HRA when you sign up for the plan.
Flexible Spending Account (FSA)
You establish an FSA through your employer. It doesn’t have to be tied to a health plan.
Health Savings Account (HSA)
You do. You contribute pre-tax money via payroll deductions. The contribution amounts generally change every year. View current contribution limits.
Your employer, family and others can put money into it if they choose. Any unused funds continue to roll over year to year. Like any personal savings account, there’s no limit to how much you can save over time.
Health Reimbursement Account (HRA)
An HRA is funded entirely by your employer. You can’t put your own money into it.
Flexible Spending Account (FSA)
You contribute via payroll deductions. Your employer can also contribute.
Health Savings Account (HSA)
It can only be used for qualified medical expenses. This does not include paying for premiums.
Health Reimbursement Account (HRA)
You can use your HRA for premiums and medical expenses.
Flexible Spending Account (FSA)
You can only use the money for out-of-pocket expenditures or qualified medical expenses — health insurance premiums don’t qualify. The amount you can spend is capped.
Health Savings Account (HSA)
If you leave your job, you can take your HSA with you. (Once you’ve established an HSA, it’s yours forever.)
Health Reimbursement Account (HRA)
You can’t take an HRA with you when you go (it belongs to your employer).
Flexible Spending Account (FSA)
Your employer keeps the funds. Even if you stay at your job, you could lose your FSA money if you don’t use it within one benefits year — so it’s a good idea not to park more money in your account than you can spend.
Health Savings Account (HSA)
Tax benefits include tax deductible contributions and account holders can build up their HSA by earning tax-free interest as well as tax-free returns from investing their funds.
Health Reimbursement Account (HRA)
An HRA is tax-free for both you and your employer.
Flexible Spending Account (FSA)
You don’t pay federal, state or Social Security taxes on this money.
Can I use my HSA, HRA and FSA together?
The simple answer is this: It depends on your circumstances. There’s no easy or “right” answer. It gets tricky due to the possibility of double-dipping.
Using an FSA + HRA together
You can use an FSA and HRA together. If you have an FSA, expenses typically come from that account first. Funds from the HRA are then used to cover other medical expenses.
Using an FSA + HSA together
It’s uncommon to have an FSA and HSA at the same time, but not impossible. One exception to this rule is pairing an HSA with a limited-purpose FSA (also called an HSA-compatible FSA, or post-deductible FSA). In this case, you can use your limited-purpose FSA only for certain expenses, like dental or vision care, until you reach your health plan’s deductible. By tapping into your limited-purpose FSA first, you can save more of your HSA dollars for future expenses.
Using an HRA + HSA together
You can use an HRA and an HSA at the same time if you are enrolled in a high deductible health plan (HDHP), but the IRS has specific rules as to how they work together. For example, you can’t use HSA funds to cover medical expenses that were reimbursed by your employer in an HRA. You can also use them together if you opt out of your HRA reimbursement of qualified medical expenses (you can keep reimbursement for premiums). Review your health plan details to learn more.