Flexible Spending Account: Eligible Expenses and What to Know

A flexible spending account (FSA) is a benefit some companies offer that allows employees to set aside a portion of their paycheck to pay for eligible health, dental and vision expenses. Some employers also offer dependent care FSAs to help cover dependent care expenses for eligible children and adult dependents.

Because FSA contributions are not taxed, stashing away funds can be a great way to prepare for unexpected medical bills while reducing your taxable income. However, don’t contribute more than you’re sure you will use in a year because you won’t be able to get the unused funds back. Read on to learn more about FSA contribution limits, eligible expenses and reimbursements.

What is a flexible spending account, and how does it work?

Also called a “flexible spending arrangement,” a flexible spending account is a pretax benefit only available through an employer. When you have an FSA, you typically submit receipts or statements for out-of-pocket medical, prescription, dental and vision costs not covered by your insurance plan to the FSA provider. Once approved, you will receive a reimbursement check or direct deposit. Some FSAs may offer a debit card to use at eligible stores, eliminating the need to submit receipts.

While contributing toward an FSA is optional, it can be a smart move if you expect to incur co-pays and deductibles throughout the year. Some employers may also contribute toward your FSA or offer a Health Savings Account (HSA) as another option. However, you can’t contribute to a traditional health FSA and HSA within the same plan year.

Here are some key facts about FSAs:

• FSAs can cover medical, dental and vision co-pays, coinsurances, deductibles, drugs and out-of-network costs — but not insurance premiums.
• You can use FSA funds for yourself, your dependents and a spouse (even if they have their own FSA account).
• Certain over-the-counter medicines and medical devices may be eligible for reimbursement with a doctor’s note or prescription.
• FSA funds generally expire at the end of the year, although employers may offer a 2½-month grace period or allow you to roll over up to $640 in unused funds to use the following year.
• You can only contribute up to the FSA annual limit, as determined by the IRS.

Note that you can’t open an FSA if you’re self-employed. Instead, you can consider a medical savings account or use an HSA to set aside pretax earnings with a high-deductible health insurance plan through the Marketplace.

An HSA can also be paired with a Limited Purpose Flexible Spending Account (LPFSA) for vision and dental expenses and a Dependent Care Flexible Spending Account (DCFSA) for child care expenses.

Flexible spending contribution limits 2024

The IRS determines the FSA minimum and maximum limits each year. For 2024, the minimum contribution is $100 and the maximum is $3,200. If your spouse has their own FSA, they can also contribute up to $3,200 in their respective account — essentially allowing your household to set aside up to $6,400 in pretax funds for the year.

Note that the FSA annual limit is connected to your employer; if you have two unrelated employers or change jobs midyear, you can contribute up to $3,200 to each separate plan.

If your employer allows you to carry over unused funds, the maximum amount you can transfer from 2024 to 2025 is $640.

Employers may decide to also contribute to their employees’ FSA accounts. In that case, the employer can contribute up to $500 or match the employee’s contribution (up to $3,200 in 2024).

Pros and cons of flexible spending accounts

Eligible expenses for flexible spending accounts

Your FSA funds can cover a wide range of health-related expenses for yourself, your spouse and any dependents claimed on your taxes. However, FSA eligibility can vary by employer so it’s worth contacting your FSA provider for clarification (have your FSA account number ready for quick service).

Here are some common expenses that are typically covered by FSAs:

• Co-payments for medical, vision and dental services
• Prescriptions
• Lab work, X-rays, cardiograms
• Hearing aids and batteries
• Insulin
• Eyeglasses and contact lenses
• Braces and Invisalign
• Breast pumps
• Birth control pills and devices
• Certain infertility treatments
• Wheelchairs and walkers
• Sunscreen
• Over-the-counter pain and allergy medications
• Eye exams
• First aid kit
• Chiropractor
• Acupuncture

What is a dependent care flexible spending account?

A dependent care flexible spending account (DCFSA) is a type of pretax savings plan that can be used to care for any dependents living in your house. Eligible dependents include children under the age of 13 who are claimed on your tax return, or a spouse or relative who is physically or mentally unable to care for themselves.

Like an FSA, a DCFSA must be established through your workplace. At the start of the year, you select how much you want to be deducted from each paycheck. The contributions aren’t subject to payroll taxes, thus lowering your tax liability for the year.

In general, you’ll have to pay for expenses out of pocket and then submit receipts for reimbursement. While some employers may provide a DCFSA debit card, the transactions have to match the month the care is provided, making it tricky if you need to prepay for a service next year or next month.

Your DCFSA funds can be used for eligible expenses that allow you to work or search for work, such as:

• Child or adult day care
• Preschool
• Babysitters and nannies
• Summer camp
• Teacher workday camps
• Before- or after-school programs
• Transportation costs to/from care centers

Once you set your annual elected amount, you typically can’t change it unless you or your spouse need to significantly change work hours or switch to a more or less expensive child care provider. However, the IRS doesn’t allow DCFSA increases if your new child care provider is a relative.

Because DCFSAs don’t allow carryovers for unused funds, it’s crucial to pick a contribution amount you expect to use within the year. You also get a 2½-month grace period to use your remaining DCFSA funds.

Dependent care flexible spending contribution limits 2024

The IRS sets the annual limit for Dependent Care FSAs. The amount you can contribute in 2024 depends on your tax filing status:

• Married but filing separately: $2,500
• Single or married and filing jointly: $5,000

Note that if you elect to contribute the maximum $5,000 with your employer, your spouse can’t contribute anything to their individual DCFSA. Also, you can’t “double-dip” expenses, such as you and your spouse each getting reimbursed for the same child care expense.

Pros and cons of dependent care flexible spending accounts