A Flexible Spending Account (FSA) is a popular employer-sponsored benefit that lets you set aside pre-tax dollars for eligible healthcare expenses. It’s flexible, tax-advantaged, and simple to use — but it also comes with a few restrictions you’ll want to understand.
Read on for everything you need to know about FSAs.
The quick cut
- An FSA is an employer-sponsored account that lets you use pre-tax dollars to pay for eligible medical, dental, and vision expenses
- You get access to the full annual amount on day one, even though contributions are spread out over the year
- Most FSAs follow a “use it or lose it” rule — leftover funds may be forfeited
- FSAs help lower your taxable income and simplify budgeting for out-of-pocket healthcare costs
- Under the One Big Beautiful Bill Act (OBBBA), FSAs now cover a broader list of expenses, including more OTC items and preventive services
What is an FSA and how does it work?
An FSA lets you use pre-tax money from your paycheck to pay for qualifying medical expenses — like co-pays, prescriptions, dental care, vision needs, and over-the-counter products. It’s available only through employer-sponsored coverage, and your contributions are deducted automatically throughout the year.
With an FSA:
- You choose how much to contribute (up to the IRS limit) at the start of the plan year
- You get access to the full annual amount immediately, even if you haven’t contributed it all yet
- You must use the funds within the plan year — most FSAs don’t roll over
- Some plans offer a small carryover or grace period, but unused funds are typically forfeited
What changed under OBBB?
The One Big Beautiful Bill Act (OBBBA) didn’t dramatically alter FSAs, but it did expand the list of eligible expenses and brought FSA rules into closer alignment with those governing HSAs — making it easier to coordinate across accounts if you have both.
OBBBA also broadened reimbursement rules for certain over-the-counter medications, telehealth services, and preventive care items — giving you more ways to use your FSA dollars tax-free.
Why FSAs matter
FSAs offer a simple, tax-advantaged way to manage everyday healthcare expenses — without the long-term commitment of an HSA. For many employees, they’re a practical way to plan ahead and reduce financial stress.
Here’s why FSAs continue to be a popular choice:
- Immediate access to funds: FSAs are ideal for budgeting healthcare expenses you know are coming up
- Lower taxable income: Every dollar you contribute reduces your overall tax burden
- Simple to use: No account management or investment decisions required
Just be sure to plan ahead and use your funds before the plan year ends — otherwise, you risk leaving money on the table.
In conclusion
Flexible Spending Accounts (FSAs) are a powerful tool for managing out-of-pocket medical costs while reducing your taxable income — but they come with important rules around timing and usage. Thanks to expanded eligible expenses under OBBBA, FSAs are more versatile than ever.
If you’re planning for known healthcare costs or want to take advantage of pre-tax dollars without committing to an HSA, an FSA can be a practical, lower-risk choice. However, if you’re looking for more flexibility and control over your funds, you may prefer an HSA.
