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When open enrollment rolls around, you may have the option to set aside money in a flexible spending account (FSA). A flexible spending account lets you save pre-tax money for things like out-of-pocket healthcare costs and childcare expenses. Taking advantage of an FSA can save you money on taxes, but there are some important limitations to be aware of.
Keep reading to learn about how a flexible spending account works, what FSAs cover, and the FSA contribution limits for 2025 and 2026. We'll also answer a few frequently asked questions about FSAs.
A flexible spending account (FSA) is an employer-sponsored account that lets you contribute pre-tax funds from your paycheck for out-of-pocket healthcare and dependent care costs. A flexible spending account is sometimes called a flexible spending arrangement.
There are two main types of FSAs:
You can use account funds to pay for out-of-pocket healthcare costs that aren't covered by your health insurance, like co-pays and deductibles (but not premiums), prescriptions, over-the-counter drugs, and medical equipment. You can use the funds to cover medical costs for you, your spouse, and your dependents.
Note that you generally can't contribute to a health savings account (HSA) if you or your spouse has a healthcare FSA, though there are a few exceptions. The most common is a limited purpose FSA, which you can only use for dental and vision care and is designed to be compatible with an HSA.
A dependent care FSA allows you to put tax-free money in an account that you use to pay for expenses related to childcare, or caring for a spouse or another relative who lives in your home and is unable to care for themselves. Dependent care FSAs won't affect your eligibility to make HSA contributions.
You sign up for an FSA during open enrollment or when you become eligible for benefits after you're hired. You'll need to sign up for the account and decide how much you want to contribute. Your contributions will then come out of your paycheck through automatic withholdings. You then file a claim for reimbursement when you incur expenses.
Because the account is funded with pre-tax dollars, the portion of your paycheck you contribute to your FSA won't be subject to federal taxes. Some employers match part of your FSA contributions. However, this perk is relatively rare.
A couple of important things to know about FSAs: The accounts are owned by employers, not employees, so if you leave your job for any reason, you'll forfeit funds in the account.
FSAs are also funded on a "use-it-or-lose-it" basis, meaning you'll need to use all account funds before the plan year ends. (This is an important distinction between HSAs vs. FSAs, as you can roll over your HSA balance from year to year.) However, employers have the option of providing either a limited carryover of funds or a two-and-a-half-month grace period (but not both) to spend unused funds.
You can only change your FSA contributions during open enrollment or if you have a qualifying life event, like getting married or divorced, having a child, or changing jobs. Because of the use-it-or-lose-it nature of flexible spending accounts, they're best used for predictable, recurring expenses.
Here are some common expenses that you can pay for with a medical FSA -- though if you have a limited purpose health FSA, you can only use the account for costs of dental and vision care. You can only use your healthcare FSA for expenses that aren't covered by health insurance.
You can use a dependent care FSA on the following expenses for a child younger than 13, a spouse who isn't capable of self-care because of a disability, or an adult dependent you can claim on your tax return:
Many categories of services related to dependent care -- like overnight camps, educational expenses, fees for activities and lessons, and care that's necessary because you're sick or on vacation -- aren't eligible for FSA reimbursement.
The IRS sets annual FSA contribution limits. In 2025, you could contribute $3,300 to a healthcare FSA. The healthcare FSA contribution limit increases to $3,400.
For dependent care FSAs, contributions are limited to $5,000 for single filers and married couples filing jointly in 2025. If you're married and filing separately, the limit is $2,500. These limits increase to $7,500 and $3,750, respectively, in 2026.
If your employer provides a carryover option, you can carry over as much as $660 from 2025 to 2026. The carryover limit from 2026 to 2027 will increase to $680.
